SULLOM Voe Terminal (SVT) could close its doors with the loss of hundreds of jobs as soon as 2025 if oil company BP decides to bypass the terminal when exporting oil from the massive Clair field west of Shetland.
The threat to the viability of the terminal comes as former operator BP and new SVT operator EnQuest remain locked in negotiations over the terms of continuing to export Clair oil via an existing pipeline to the terminal.
A spokesperson for BP said this week that it is “evaluating alternative technical options” for the export of the oil while the discussions continue.
The potential consequences of losing Clair oil would not just put around 400 jobs at risk but also put a huge dent in Shetland Islands Council’s (SIC) income.
The chairman of the council’s development committee Alastair Cooper is well aware the oil coming from Clair is “keeping the harbour going”, acknowledging that oil coming the East of Shetland is in decline and not sufficient to keep the terminal open in the long term.
The SIC earns between £6 and £8 million every year from operating the port of Sullom Voe, money that goes into its reserve fund and is used to finance vital services in the community.
The level of threat has now been marked as red within the council’s risk register, warning that “without Clair volumes the medium/long term future of SVT would be in some jeopardy”.
It continues: “If SVT cannot secure long term business on a satisfactory commercial basis then there is a risk that the terminal would close in the medium term, perhaps around 2025.
“A significant decline or cessation of oil and gas activity at SVT would have very considerable economic, financial and social consequences.”
The council has appointed a specialised consultant to focus on the issue, while technical advice is being considered with legal, financial and technical advisors.
EnQuest, which took over the running of the terminal in December 2017 and is priding itself on having already reduced the operating cost by one quarter to £150 million, is said to be pulling out all the stops to keep the vital contract.
The company would only confirm that a commercial offer had been submitted to BP.
The Clair field, located 75 kilometres to the northwest of Shetland mainland, was discovered as early as 1977 and holds estimated reserves of seven billion barrels.
But the challenging “reservoir characteristics” meant that only at the start of the new millennium BP felt confident enough to start developing the field in several phases, including building a sizeable pipeline connecting the field to Sullom Voe Terminal.
It was only last autumn that phase two, Clair Ridge, came on stream, with its output expected to peak at 120,000 barrels a day.
A spokesperson for BP said a decision on the future of exporting oil from the Clair field would be expected at some point this year.
“Oil from the Clair field has been exported to the Sullom Voe Terminal since 2005 and as a result of ongoing investment, most notably the multi-billion-pound Clair Ridge development, production from the field is expected to continue for at least another 40 years, well beyond the current expected life of the terminal,” the spokesperson said.
“In order to safeguard oil export from the Clair field for the long-term, and facilitate a decision around a potential third phase development of the field, we approached SVT owners seeking terms for long term service. We have now received a commercial offer which we are reviewing.
“As a prudent, responsible operator, we are also evaluating alternative technical options. No decision has yet been taken on the long-term export route.”
Cooper said that as a community “we would really want to see Clair continuing to come into Sullom Voe”.
He added: “Our whole business plan for Sullom Voe harbour is based on throughput.”
Northern Isles MP Alistair Carmichael, meanwhile, said there was a “lot at stake”.
“I very much hope that BP will look with fresh eyes at the offering of Sullom Voe Terminal,” he said.
“The current operators have gone to some length to drive down the cost of the Sullom Voe operations for Clair oil field. For Shetland as well as the rest of the UK oil industry, there’s a lot at stake here.
“So if BP look at landing this oil in Sullom Voe then it keeps Sullom Voe open longer and that opens up opportunities in more fields to the east of Shetland.”
Earlier this decade Sullom Voe Terminal lost its Schiehallion business, another BP operated oil field to the west of Shetland, to offshore loading and exporting.
Last summer, BP announced that it had increased its stake in Clair after agreeing a swap of assets with ConocoPhilips. The company now holds a 45.1 per cent stake in the field.