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Schiehallion to bypass Sullom Voe

There is local disappointment at news that oil from the Schiehallion field will bypass Sullom Voe.
The oil industry is in crisis according to the chief of oil and gas body OGUK.

SHETLAND has been dealt an economic blow after BP and its partners confirmed that oil from the Schiehallion field is to permanently bypass Sullom Voe Terminal (SVT) after it resumes production late next year.

Earlier this month BP announced that initial production from the field would go to Rotterdam for technical reasons – but was at pains to stress that no final decision had been taken on production in the medium term.

But a company spokesman confirmed on Monday that there would be no return to Shetland even after technical hurdles had been overcome. 

It is a major blow to the islands’ economy as Schiehallion – due to resume production in late 2016 after being refurbished – accounted for a fifth of tanker movements and 40 per cent of production at the terminal prior to being suspended in 2013. 

And local politicians are furious that Shetland Islands Council – which runs the harbour at Sullom Voe – was frozen out of talks on the field’s future. 

BP had previously explained that the initial crude from the refurbished Schiehallion would be processed in Rotterdam because the first oil would contain MEG/methanol-rich fluids used to preserve drill centres when the field was out of action.

The latest development is likely to add to uncertainty over the oil industry’s future in the islands.

While the £4.5 billion Clair Ridge project will come ashore at Sullom Voe, it is only three weeks since SVT contractors Wood Group and Bilfinger announced they were consulting on making around 260 workers redundant ahead of the winter and in the wake of a sustained slump in global oil prices. 

The £3 billion Schiehallion redevelopment, known within the industry as Quad 204, is part of BP’s efforts to maximise the oil to be recovered. It estimates the “greater” Schiehallion area holds a further 450 million barrels of oil.

A BP spokesman said: “For technical reasons, following Quad 204 start-up [expected end 2016], initial oil production throughout 2017 will need to go to Rotterdam for processing.

SIC leader Gary Robinson said he was "astounded" that BP was citing "commercial confidentiality" as its reason for freezing the local authority out of talks.

“The Schiehallion partners have now informed the owners of Sullom Voe Terminal of the decision not to return to SVT after the initial off-spec period [2018 onwards].

“The decision has been taken to maximise economic recovery from the Schiehallion and Loyal fields through enabling lower production costs over the long term. Gas from Schiehallion will continue to be exported via the Sullom Voe Terminal.”

Shetland MSP Tavish Scott said he was “very disappointed” with the news: “Shetland needs all the economic activity it can get and these are worrying times for the people who work in the industry. I spoke to BP in Aberdeen today [Monday] and stressed the importance of Sullom Voe as an employer.

“It is not just the direct jobs that matter, but all the support companies and businesses in Shetland that have oil work. I want to ensure that SVT is financially competitive and can win work such as Schiehallion in the future.”

An SIC spokeswoman said the withdrawal of Schiehallion oil production would be of “enormous significance to the council, as operator of the port, and to the community of Shetland, which benefits from the income generated on vessel movements”.

She added: “Disappointingly, the council was not included in any discussions with the industry ahead of this decision, and has now asked for immediate dialogue with the field and terminal operators, the UK government and the UK Oil and Gas Authority on the future of the port.”

In response to those concerns, BP’s spokesman said: “Commercial confidentialities prevented a discussion with Shetland Islands Council while negotiations were ongoing. The decision was communicated to the council as soon as it was made during a face-to-face meeting on Shetland with senior representatives of BP and the local authority, including the chief executive.”

SIC leader Gary Robinson said he was “astounded” by that statement, adding the local authority had always respected the industry’s need for commercial confidentiality through the Sullom Voe Association, and would historically have been “kept in the loop” about such decisions.

BP said that SVT was “in the middle of a major renewal, rationalisation and capability enhancement programme to meet future requirements of east and west of Shetland customers and to reduce operating costs for the long term”.

“In addition to the core SVT operations workforce, this renewal work is expected to generate an average of 300-400 contractor jobs at the site for the next 4-5 years and will involve investment of hundreds of millions of pounds in total.”

At a meeting of the local authority’s policy and resources committee on Monday, councillor Alastair Cooper said some industry figures had “taken a notion that we’ve lost interest” in goings-on at the terminal.

He suggested that, by even floating the option of selling off the harbour at Sullom Voe, the SIC was “doing ourselves a lot of damage” and needed to “stop propagating this ‘we’re going to sell message’”.

Cooper said he was concerned that the industry was “wandering around doing stuff and not communicating with us”.