Glow on the horizon as Shetland’s gas is turned on

A welcome boost for the North Sea oil industry, reeling from job losses and sustained price slump

Tom Bawden
Environment Editor
Tuesday 09 February 2016 09:56 GMT
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The Laggan and Tormore terminal at Sullom Voe, Shetland
The Laggan and Tormore terminal at Sullom Voe, Shetland

The beleaguered North Sea oil industry received a much-needed boost yesterday, as the delayed £3.3bn Laggan-Tormore project finally started producing gas.

The two deepwater fields off the Shetland Islands in Scotland will produce 500 million cubic feet a day – enough gas to supply 2 million homes, or 8 per cent of the UK’s total consumption. The fields lie 77 miles to the north-west of the Shetland Islands and are being operated by the French oil company, Total.

“Laggan Tormore is a key component of our production growth in 2016 and beyond. Total is also boosting the United Kingdom’s production capacity and Europe’s energy security,” Total’s head of exploration and production, Arnaud Breuillac, said.

The technically challenging project involved building a production system that runs 600 metres down to the seabed. Its construction was delayed by a year because the conditions in the North Atlantic were so tough.

The plant is thought to be the biggest construction project in the UK since the London Olympics, involving more than 800 builders; the fields lie right on the edge of the UK continental shelf, where the sea bed descends rapidly from 120 metres to 600 metres.

Laggan Tormore will bring some relief to the ailing North Sea oil and gas industry, which is reeling from 65,000 job losses over the past 18 months – and is on standby for tens of thousands more – amid a sustained oil price slump that a new report warns will possibly lead to 146 rigs being scrapped over the next 10 years.

The report, by the Douglas-Westwood consultancy firm, said that many of the ageing North Sea rigs are uneconomic to run at the lower oil price level, which analysts predict is set to last for at least another year and a half.

Total turned on the gas at the Laggan-Tormore plant on Monday (BBC)

However, while such widespread decommissioning is hugely worrying, there is a silver lining – there is a great deal of money to be made from dismantling the huge amounts of infrastructure that has built up in the region in the past few decades and “the UK will dominate decommissioning expenditure”, Douglas-Westwood said.

The scale of the carnage yet to come in North Sea production, however, was underlined last week as Britain’s oil and gas giants reported massive hits from the slumping price.

BP announced its biggest ever annual loss and gave notice of 3,000 job cuts in addition to the 4,000 it made last year.

Meanwhile, Shell announced an 80 per cent dive in its profit for 2015 and confirmed it would be cutting a total of 10,000 jobs after its £33bn takeover of rival BG Group cleared its final hurdles. The oil price has tumbled from $115 a barrel in the summer of 2014 to $32.88 yesterday, with some forecasts suggesting it could go as low as $10 later in the year.

The price has been hit by soaring US shale production and a slowdown in demand from juggernaut economies such as Brazil and China.

Analysts fear that exports from Iran, following the lifting of sanctions, are likely to add to the supply glut.

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