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Refinery strike has oil near $120
BBC
Oil prices have hit a fresh high just below $120 a barrel after a strike at a UK refinery disrupted production from the North Sea.
BP shut down a key North Sea pipeline after staff walked out of the Grangemouth refinery in Scotland in a two-day strike over pensions.
Providing a third of UK oil output, the closure of the Forties pipeline has raised fears about supply shortages.
US light crude hit a high of $119.93 a barrel before edging down to $119.40.
(28 April 2008)
The Art of Falling Apart: do we ever learn from our mistakes? (Grangemouth, peak oil and catastrophic hard drive failures)…
Rob Hopkins, Transition Culture
… While I was sitting, sweating and kicking myself in a small computer shop in Ashburton, workers at the Grangemouth oil refinery in Scotland were voting as to whether they should strike over their pension rights or not. Grangemouth receives more than 700,000 barrels of crude oil from North Sea every day which comes to it through the Forties oil pipeline in the North Sea, comprising one-third of the UK’s oil supply. Grangemouth then refines this oil into a range of products, the most abundant, and the most relevant to this story being petrol, diesel and aviation fuel (Euan Mearns at Oil Drum Europe’s excellent overview of Grangemouth can be seen here).
The strike means that, for safety reasons, the plant has now closed, and once closed, it will take more than 3 weeks to get it operational again. According to the Independent, this could cost the country £50 million a day, although Mearns puts the figure closer to £90 million. The price of oil surged to nearly $120 a barrel, another record, in response. UK Energy Minister, Malcolm Wicks, admitted that the Government couldn’t guarantee that oil supplies to the UK would remain uninterrupted.
“I hope the vast majority of people are sensible about this. They might have to be patient. People will have to be sensible and rational”.
By Friday evening, reports were coming in of long queues at petrol stations in Scotland, and on Saturday morning, there were even longer than usual queues here in Totnes, the other end of the country. By Sunday, the pipeline had been closed down, and the Government had swung into action, with imports of substitute fuel being brought in from a range of places. It appears that the UK is on the verge of an interesting couple of weeks. Chances are the disruptions won’t last for long, it is not a long-term supply challenge, but it could well be a very difficult few weeks, with rising prices both on the international markets and at the pump, panic buying, and the possibility of disruptions to industry (the pipeline also supplies gas), in spite of reassurances that there is plenty of fuel provided people don’t panic buy.
… As the price of oil rises, I find myself like a racehorse owner cheering his horse home. High oil prices are a good thing, a certain degree of disruption to supply is a good thing, as it begins to shake us out of what James Howard Kunstler calls “the consensus trance”, highlighting the fragility of our situation. This is a good time for this to happen, a good time for a trial run (as it were). We are not in the depth of winter, so some degree of fuel shortages are unlikely to be life-threatening. Let’s hope that this time, as a nation, we begin to see the need to, as it were, back up our data.
(28 April 2008)
Grangemouth strike: Anglo Disease in action?
Jerome a Paris, The Oil Drum: Europe
… I’d like to flag just a few points that seem to be typical of our times, and maybe warrant making this a symptom of the Anglo Disease, ie the wholesale domination of our economies by reckless financial capitalism:
* the strike is about company-provided pensions (the unions are fighting a plan by the owners to not provide the same pensions to new hires as existing workers have, and to change rules on existing ones). With falling or stagnant stockmarkets, market-based pension funds, especially those run by corporations on behalf of their workers, are in trouble and force those corporations to provide top-ups to meet their obligations. Companies are looking for ways to reduce their liabilities, and pension funds and contributions are high on the list of “fat” to be trimmed in the never-ending quest for “efficiency” at the expense of workers;
* in line with that, you can of course read outraged quotes from corporate shills blaming unions for “holding the economy to ransom.” The problem is always unions, and workers, and never management and their decisions – whether to cut “fat” or to run the company in ways that make it vulnerable to changes in the value of its pension funds because of stock market movements; in other words, the legitimacy of cutting on pensions (and effectively reneging on obligations to workers) is taken as a given in all public discourse on the economy;
* typically, the strike is taking place in a bit of infrastructure that was spun off by BP: the Forties pipeline system, built initially for the Forties oil field, and the refinery it fed, but now extended to many other offshore fields and onshore facilities. BP has kept the pipeline system but sold the Forties field to Apache and the refinery to a private equity fund. But these bits still operate together as they are all still part of a coordinated industrial complex that needs to be run, in practice, as a whole. Losing power or capacity in one bit can trigger closures in other activities, with knock-on effects. Separating ownership of various bits is all the rage these days (whether it’s called deregulation, unbundling, promoting competition, breaking monopolies, etc…) and it’s been a favorite hunting ground of investment funds, and in particular highly leveraged private equity firms. Ineos, the owner of the refinery, is the happy carrier of several billion pounds of debt along with it… Resilience, and industrial common sense have lost out to short term financial return requirements…
* amongst the knock-on effects in this case are the consequences not just on oil markets, but also on natural gas markets. Lost production amounts to 700,000 b/d of oil, and 2mcfd of gas, just under 1% of world production in each case. Oil markets are already strained, and that lost capacity is further inflating things. But shortages would be localised, and are actually unlikely given the available stocks in the area, unless panic spreads.
On the gas side, on the other hand, it’s a different story: the UK market has been built around the assumption that there would be permanent oversupply, and supply would “competitively” adapt to demand to provide market balance. Now, however, the country’s production is declining sharply and it needs to import increasing volumes. With very little storage capacity, a legacy of the days when you just had to turn gas fields on or off, lost production will translate rapidly into shortages and have immediate impact on natural gas prices. The markets will “provide”, in the form of demand destruction from industrial users with interruptible contracts, but is that a serious way to run an economy in the long term?
* finally, it is worth noting that a small local conflict by just a thousand workers will have a global impact, pushing prices of our most precious commodity up worldwide (the run-up in the past few days was already linked to expectations surrounding this strike). This is both a sign of our increased vulnerability to a tight oil supply/demand balance, and possibly a sign of hope that the balance of power between financiers and the rest of the world is finally changing as reality (and in particular physical and human bottlenecks) reasserts itself against the mad rush for short term profit.
Infrastructure matters whether it is transport, basic industry or institutional frameworks. You can only ignore it for so long. Countries that do infrastructure well (and which include people in what is meant by “infrastructure”) are likely to do a lot better in the long run.
(X April 2008)
Forties – Grangemouth: the failure of a complex tightly coupled system
Euan Mearns, The Oil Drum: Europe
The sequence of events (covered here on The Oil Drum previously) that led to the Forties Pipeline closure on 27 April 2008 began in 2005 when BP, currently the UK’s largest company, sold Innovene, their Grangemouth refinery subsidiary to Ineos. Ineos is privately owned petrochemicals company that has grown from nothing since its formation in 1998, fueled by debt reported to be €9 billion.
BP, once 50% owned by the UK government, used to own and operate the Forties Field, the Forties Pipeline system and the Grangemouth oil refinery. This is a tightly coupled complex system where oil from the North Sea flows by pipeline to Kinneil terminal where it is either diverted to Grangemouth to be refined and then combusted by energy hungry consumers or it is diverted to Hound Point for export by tanker (see map below the fold). The failure of any vital part of this complex system may close the whole system down. This system is now fragmented and its failure has just happened.
Failure by BP to recognise the dependency of the Forties Pipeline upon vital services provided by Grangemouth, and to provide contingency back up for their loss, is the principal cause for over 40% of UK North Sea oil and gas production now being shutdown.
Incident prone BP are of course not the only stake holder to shoulder responsibility and below the fold I explore the responsibilities of the Grangemouth Workers, Ineos, The Banks, Government and The Media in contributing to this debacle.
(27 April 2008)
More coverage of Grangemouth from a peak oil perspective by Euan Mearns.
