Concern as industry refuses to engage over future of Sullom Voe terminal despite two-year council effort

By JOHN ROBERTSON

The oil industry has been snubbing requests from the SIC to discuss the future of Sullom Voe for over two years, it emerged this week.

The failure to engage with the local authority came to light as BP protested about a 17 per cent hike in the tanker charge levied by the local authority. Yet the steep rise is partly a consequence of the industry not sitting down to talk to the council about how port operations will be paid for as the terminal declines.

The council says its charge for handling tankers visiting Sullom Voe has to be hiked for 2009/10 because far fewer ships will visit than the oil industry had previously forecast, throwing its budget calculations into chaos. Around 40 per cent of the traffic involves Schiehallion oil but severe prob­lems with the floating production ship in the west of Shetland field will force it out of action for up to five months this year, following four months offline last year.

The drop in tanker numbers means the council cannot generate the £4 million a year profit it targets to salt away in its reserve fund for the future. Even with the 17 per cent increase in the charge it expects profits to fall to £2.4m.

SIC harbour board chairman Alastair Cooper said to return profits to £4m a year would have required a rise in the charge of 37 per cent, a fact which had to be understood by the industry.

The local authority says it is left with a major worry about how the current safe level of ship handling will be paid for during the rest of the terminal’s life. Mr Cooper said the industry’s inaccurate production forecasts were making it very difficult for the council due to the fixed costs it has in running the port 365 days a year with tugs, mooring boats and pilots. Looming on the horizon next year is the fight to regain the contract for handling Schiehallion oil which, if lost, would plunge the port operation, and the terminal itself, into deeper financial turmoil.

Mr Cooper told the harbour board on Monday the local authority was not prepared to get into a position where it was subsidising the oil industry as the terminal declines. “The council will not run Sullom Voe at a loss,” he said. “The industry has to come to the table in 2009 and deal with this. We’re in this game together and we have to play together, not to knock spots off one another.”

Tensions in the council/industry relationship were on public view at the harbour board on which terminal manager Lindsay Boswell of BP has a seat. Board members attacked the former SIC official for the oil industry’s failure to give accurate production forecasts or to discuss the problems the council is faced with.

Mr Boswell stuck to the line he took three weeks ago at a private meeting with the council to hear about the proposed harbour charge for 2009/10, reiterating his dis­appointment about an increase well above inflation during a time of lower oil prices, branding it “un­welcome and unhelpful” in the terminal’s efforts to stay com­petitive. He called for the hike to be addressed immediately and for the council to review its costs and seek to run its port operation more efficiently.

Despite his appeal the new charges were passed by the board without a vote. The next day BP announced record global profits of £18.1 billion, up 39 per cent on the previous year, following Shell’s profit of £22 billion revealed last week. However the global down­turn contributed to BP making a loss of £2.3bn over the final three months of the year.

Mr Cooper revealed that chief executive Morgan Goodlad had been writing to terminal operators BP since November 2006 seeking meetings to discuss a new system of charges for the future but it seemed some of the oil companies involved in the consortium were not interested. The hope is that the attitude may change as the result of a meeting of the Sullom Voe Association late last month at which BP and Shell agreed there was a need for discussions.

Mr Cooper told the board: “We keep asking the question as to why they’re not meeting us. The industry has to show the will and the desire.”

The chief executive later confirmed that no date had been set at the recent meeting for talks to start. He also confirmed that he had written repeatedly to BP “reiterating that we were still waiting to enter negotiations on a longer term strategy”. He said the industry had actually established a task force to look at the issue, including Mr Goodlad’s suggestion that a fixed annual fee could be negotiated instead of tanker charges or that “an equalisation mechanism” could be agreed. But the group never reported back despite the fact he had regularly asked questions about progress.

The council used to have an equalisation account intended to cushion the continuing cost of a full port service in the dying days of the terminal when tankers are few and far between but those days were supposed to have arrived around the turn of the century. They did not and the money has been exhausted, leaving no plan in place to deal with the terminal’s twilight years.

The council’s harbour charge is levied on the gross tonnage of the tankers and is paid by the buyer of the oil to be carried, not the terminal or the oil companies. The charge for 2009/10 is to be 84 pence per gross tonne and £1.01 per tonne for non-segregated tankers like gas carriers. Fees for the use of tugs in and out can be up to £70,574 for the biggest tankers. Ship-to-ship oil transfers will be charged at the same rate as last year, if any actually take place (see separate story).

At Monday’s meeting the first harbour board member to have a go at the industry through Mr Boswell was businessman Jim Tait from Walls, who wanted the terminal manager to tell the council how it was supposed to balance the books when the amount of oil passing through the terminal was far less than he and the oil industry had predicted. The situation could not go on forever, he said.

Mr Boswell said the council would have to look at the level of service it provided in the port. Mr Tait accused him of not having answered his question regarding how the council was meant to cope with a level of business which was “a long way short” of what the industry predicted. Mr Boswell countered that the terminal used the best information it had available.

Mr Tait said the council had fixed costs for running the port which made it difficult if there was an unexpected shortfall in earnings. As a lay member he declared he had no political axe to grind with Sullom Voe Terminal but it must have enjoyed the benefits of an oil barrel price up to $140 last year.

At last month’s meeting Mr Cooper told Mr Boswell it was inappropriate for him to link charges to the current low oil prices because there had been no offer to pay higher dues when oil prices were high.

Councillor Rick Nickerson had no sympathy for Mr Boswell over the low oil price saying the costs facing the terminal had not been challenging last year. He said the board had a responsibility to the council and to the community to show it was running a viable business and he hoped the price hike would focus industry minds and bring them to the table.

Meanwhile, just what does happen in the Schiehallion field remains to be seen. During the five-month shutdown this year the floating platform is to have its water ballast tanks strengthened. But there is speculation that the 11-year-old custom-built ship will have to be replaced by one more solidly built for the raging Atlantic west of Shetland. A page on the company’s website refers to plans to build a new platform ship.

A spokeswoman for BP in Aberdeen confirmed that the Schiehallion field would be out of action for four-to-five months this year for repairs. She declined to confirm that a new platform ship would be required. “At this stage we’re considering a number of options which we believe may offer the potential to maximise field development.”

She said it was “too early to say” whether the hike in charges might influence where BP awards the new contract for handling Schiehallion oil next year.