Government pressed to act swiftly on Total gas pipeline from the west

By JOHN ROBERTSON

POLITICIANS are calling for an urgent decision from the UK government to help bring all west of Shetland gas ashore through Sullom Voe, injecting new life into the terminal.

If oil company Total is granted a lower tax rate on the gas it will produce from the Laggan and Tormore fields it is prepared to build a large new pipeline capable of taking every other company’s future gas discoveries ashore to Shetland and onwards to the St Fergus gas terminal near Peterhead. If no incentive is forthcoming Total would opt for a shorter, smaller pipeline costing up to £200 million less, still linking into Sullom Voe but feeding out into the existing Frigg UK gas pipeline to St Fergus. But it would not be able to accommodate future gas finds.

A decision is needed urgently – by the end of January at the latest – to allow Total to begin work this year with a view to gas coming ashore from the field 80 miles north-west of Shetland in 2013. The project has already slipped one year at a time when Britain is desperate to secure its future supply of oil and gas. West of Shetland is estimated to hold about six per cent of the country’s gas requirements in potentially more than 40 wells.

Shetland stands to gain from either pipeline option after Total and other oil companies recently came out in favour of piping their west of Shetland gas finds to Sullom Voe rather than loading offshore, which would have seen the business bypass the islands. For its development, Total plans a new £500m gas processing complex, employing up to 50 people permanently, separating liquids from the gas then drying and compressing the gas to pipe to St Fergus for further processing and pumping into the nation’s mains gas network. The plant will need to be modified if it is also to handle gas from other Atlantic fields.

Total E&P managing director Roland Festor confirmed the options yesterday. Speaking to The Shetland Times from the Alywn field, he said: “I think everybody agrees now to bring the gas to Shetland and to process the gas in Shetland with a new gas plant.”

He admitted a deal to use Sullom Voe was not yet fully sealed with the terminal owners but said it was “the reasonable solution” rather than going elsewhere in Shetland, which had been a possibility.

Total and its partners are still deciding which pipeline option to go for. Mr Festor confirmed the estimated cost difference of £150-£200m and that Total was ready to go for the expensive option if it got the incentives to do so. “Everybody must understand it is difficult for us to go for the large pipeline if we are to finance such an extension when we have this alternative, much cheaper, solution – especially in the current conditions with everybody very careful before spending money.”

Isles MP Alistair Carmichael was part of the all-party parliamentary group on oil and gas which met Mr Festor and others from Total in London on Tuesday and agreed to press the Treasury to end the delay and provide an answer before the end of January. The group hopes to secure a meeting with ministers before Christmas.

Mr Carmichael said the “cheap option” for Total would be joining in with the Frigg pipe, which would cut the length of pipeline it required to build by between one-third and half. But the oil company was willing to provide for all. “If Total can cut a deal that makes the construction of the bigger, longer pipeline economic then they will build, quite cheerfully. The question for the Treasury is: are they prepared to make the investment in constructing a pipeline straight from Shetland to St Fergus? I have no doubt in my mind where the strategic national interest lies on this.

“The obvious advantage of a new pipeline is that there will be greater capacity so it would tie in Sullom Voe to all the west of Shetland developments and it would also mean that the economics of future developments for other fields would be significantly improved if they have capacity in a pipeline that takes the gas straight from Sullom Voe to St Fergus.”

Mr Festor urged an early decision and said the company could easily lose a year if it missed the weather window in summer. “It’s not an easy decision but we would like to have the decision made quickly otherwise we are going to lose our target of producing gas in 2013.”