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Bloomberg
The effects of a hairline crack in one of the world’s most important oil conduits is rippling through crude markets from Europe to the US and Asia. The Forties Pipeline System is being shut after the fault was discovered near Aberdeen, Scotland. That pushed global benchmark Brent futures over $65 a barrel for the first time since June 2015, extending their premium over US marker West Texas Intermediate. The outage will support some types of oil from the Asia-Pacific region and the Middle East as buyers look for alternatives to North Sea supply, according to McKinsey Energy Insights.
The UK link is critical because flows through it make up the single largest constituent part of so-called Dated Brent crude, which helps settle more than half the world’s physical oil prices. It feeds the Hound Point export terminal near Edinburgh in Scotland and handles supplies from over 80 fields, and the shutdown forced Apache Corp. to suspend operations at its nearby Forties asset.
The pipeline’s closure is a ‘force majeure situation’ that will prevent operator Ineos Group Ltd. from moving oil through the system
for the next few weeks, company director Tom Crotty said in an
interview on Bloomberg TV on Tuesday. Ineos will know in the ‘next few days’ whether the system will be closed for two or three weeks, he said.
‘It’s more than just a supply disruption because it’s more significant as a price maker,’ said Olivier Jakob, an analyst at Petroma-
trix GmbH who’s based near Zug
in Switzerland. ‘There’s one thing which is the volume of oil which
is lost, but it’s also that it’s a key price benchmark.’
Brent for February settlement rose 64 cents to $65.33 a barrel on the ICE Futures Europe exchange at 9:54 a.m. in London. Prices gained $1.29 to $64.69 on Monday. The benchmark traded at a premium of $6.90 to February WTI.
CONTROLLED SHUTDOWN
Ineos decided to perform a ‘controlled shutdown’ of the pipeline so that it can perform a suitable repair, according to a company statement. The operator discovered the crack during routine maintenance, Crotty said.
‘We can see visually there is absolutely no leakage from it,’ he said. While the crack appears to have spread fairly recently, it’s not possible to say whether it existed before Ineos completed its purchase of the pipeline system from BP Plc on Oct. 31, according to Crotty.
BP spokesman David Nicholas declined to comment. Profits from turning crude into fuel in Europe may be squeezed by higher Brent prices, said Nevyn Nah, an analyst at industry consultant Energy Aspects Ltd. While he sees current refining margins in the region at about 50 cents to $1 a barrel above levels that would trigger cuts in operating rates, he believes plants may begin bidding up alternative supplies from West Africa and the US if the outage is prolonged.
UK gas surges after explosion
in Austria tightens supply
Bloomberg
UK natural gas prices jumped the most in more than eight years after an explosion at one of Europe’s biggest supply hubs threatened to curb flows during a cold snap.
The market already was struggling to absorb the impact of a crack that shut down a North Sea pipeline network when a blast at the Baumgarten hub in Austria killed at least one person and injured 18. The facility 50 kilometers (31 miles) northeast of Vienna transports the equivalent of about a 10th of European gas demand.
Front-month gas in Britain jumped as much as 23 percent to almost 74 pence a therm ($9.82 a million British thermal units) on ICE Futures Europe, the highest since December 2013. Gas flows into the UK surged to a four-year high overnight as shippers responded to higher prices. Liquefied natural gas tankers may be able to fill some of the gap, but those vessels take days or even weeks to arrive, said Massimo Di-Odoardo, principal analyst of gas & LNG at Wood Mackenzie Ltd.
‘Gas demand is at above average levels because of the cold snap,’ he said by email, estimating the shortfall of supply from the Forties outage at about 10 percent of average winter demand. ‘If outages persist, prices will remain high for some time.’
Supplies from the Netherlands, Belgium and storage sites increased after a worsening hairline crack halted North Sea production from fields that use the Forties pipeline network. That boosted prices. Compounding supply problems, the Norwegian network manager said on Tuesday flows would be trimmed from Troll, Europe’s largest offshore gas field.