Add one more country to the list of places that are facing a reduction in output, albeit temporarily, because of what has been referred to as "tension": the United Kingdom.
This tension is a labor dispute at the Ineos Grangemouth refinery this weekend. If the workers there strike, and the refinery is shut down, it may reduce world supply by more than 600,000 b/d.
Earlier today, BP warned buyers of UK North Sea Forties crude it may have to shut the North Sea Forties system if the planned strike at Ineos' 200,000 b/d Grangemouth refinery in Scotland goes ahead at the end of this week. In a note to Forties shippers late Tuesday, BP said that if the two-day strike goes ahead as planned from April 27 it will have an impact on the supply of "critical utilities" to the Forties Pipeline System.
The Forties system, the biggest crude stream in the UK, separates crude from gas at a stabilization plant at Kinneil near Grangemouth, using power and steam supplied from the refinery. If these supplies are withdrawn, BP said it would "ensure a timely rampdown of the [Forties] system." D-Day is Sunday, April 27. That's when the strike would begin.
Here's a suggestion for the US government: if the world loses 650,000 b/d of crude next week, President Bush should announce immediately that he is suspending further deliveries of crude into the Strategic Petroleum Reserve. Those flows have been anywhere from 90,000 to 100,000 b/d.
If Forties is shut, and crude and products spike, it isn't unreasonable for the American public to ask just what the SPR is all about. OK, a strike at a UK refinery is not the same thing as Al Qaeda taking over the Saudi government, the worst-case scenario that is justification for developing the SPR. And certainly, a lot of posturing has gone on by politicians over the price of gasoline.
But a Forties shutdown is not an insignificant disruption. A halt to deliveries of crude into the SPR is essentially the same as putting that much crude onto the market from existing stocks. It also shows that the US government has chosen judiciously to use one of the few arrows in its quiver, without establishing a precedent that says SPR oil will be released willy-nilly whenever the price simply gets too high. There would be a specific cause and effect for this release.
We'll keep readers of The Barrel up to date on the progress at the labor talks.
Why should the U.S. release unilaterally? Why not all the IEA? The disruption is in europe after all...
Thanks for your comment, Joe. It's a good question. First of all, the US would not be releasing stocks; it would simply be announcing that in response to the Forties shutdown, that it will suspend taking in new oil into the SPR. The Department of Energy doesn't need IEA approval to do that, in the same way that it didn't need IEA approval to start buying in the first place. Secondly, this is all one big global market out there, so the disruption would not be limited to Europe. If Europe, for example, looks to supplant lost Forties output with West African material -- a logical substitution -- that will affect West African supplies to the US, as Europe tries to outbid other refiners, Asian or American, for supplies. (Forties is not heavily exported to the US, but West African material is).
Thanks very much for your clarifications. Makes sense.