BP and its partners have announced that Schiehallion oil will not be coming to Sullom Voe in order to cut costs.
Earlier this year BP said that initial production, once Schiehallion production re-starts next year, would go to Rotterdam for technical reasons. This was said to be due to the composition of the oil, which would contain chemicals put down the wells while they were shut down, could not be processed at Sullom Voe.
Although Schiehallion oil was never expected to go to the terminal in 2017, it was hoped it would resume in 2018. When Schiehallion was previously operating before it shut down in 2013 its oil arriving by shuttle tanker accounted for around 20 per cent of Sullom Voe’s throughput.
BP spokeswoman Sarah Hodgkinson said that the decision by Schiehallion partners to bypass Sullom Voe was “a commercial decision to maximise recovery”.
The redevelopment of the Schiehallion and neighbouring Loyal fields, west of Shetland, is part of what the industry refers to as the Quad 204 project to extend the life of the two fields, where 450 million barrels of oil are estimated to be in place.
Ms Hodgkinson said: “This 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.”
The gas will go to the terminal via the west of Shetland pipeline, while the oil will go by shuttle tanker to Rotterdam.
In a written statement, she continued: “Sullom Voe terminal is an important hub for the oil and gas industry and a key piece of the UK’s energy infrastructure.
“The owners are 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 Sullom Voe operations workforce, this renewal work is expected to generate an average of 300-400 contractor jobs at the site for the next four to five years and will involve investment of hundreds of millions of pounds in total.
“Shetland will also continue to be the hub for a major programme of activity and investment offshore, including the multi-billion pound Clair Ridge development and the Schiehallion and Loyal fields redevelopment (the Quad 204 project).
“This project entails an almost complete replacement of the subsea infrastructure; the drilling of new production wells and the construction and commissioning of a brand new floating, production, storage and offloading (FPSO) vessel, the Glen Lyon.
“Production in these fields has been shut-in since 2013 to allow this redevelopment to take place and is planned to restart at the end of 2016. For technical reasons, following Quad 204 start-up, initial oil production throughout 2017 will need to go to Rotterdam for processing.
“The Schiehallion partners have informed the owners of SVT that Schiehallion and Loyal oil export will not now return to Sullom Voe after this initial period, 2018 onwards.”
This comes as a major blow for Shetland. A statement sent out by the SIC’s senior communications official, Carol Anderson, said: “Shetland Islands Council understands that oil from the Schiehallion field will not continue to be exported through the port of Sullom Voe in the future.
“Schiehallion has accounted for around 20 per cent of annual tanker traffic through Sullom Voe. The withdrawal of this business will 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.
“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.”
SIC chief executive Mark Boden said that Schiehallion bypassing Sullom Voe and thereby cutting 20 per cent of harbour traffic was a “substantial loss”, as the only income the council got from the terminal was the charge from the tankers.
However, he said there was nothing the council could have done to have altered the decision.
Mr Boden said: “We’re not an oil company and we don’t run the terminal.” He said that investments in the terminal to secure its long term future were “good news”, but one result of the investment was that it would have been more expensive for Schiehallion owners to continue to use it. He said: “I can’t tell you why. We weren’t involved in that discussion.”
He added that he had asked for, and got, conversations with the Scottish secretary and a series of meetings with BP.
Shetland MSP Tavish Scott said: “Schiehallion oil was an important part of Sullom Voe’s future. I pressed this when I met BP’sNorth Sea boss at Offshore Europe in Aberdeen last month. So it is worrying that the terminal was considered too expensive and Rotterdam a more competitive place to process the oil.
“All parties now need to redouble their efforts to ensure that Sullom Voe can be competitive and win work so that it has a longer term future for the many local people and businesses who depend on it.”
• More reaction and analysis in this week’s Shetland Times.