Work resumes on Elgin North Sea drilling platform 50 weeks after gas leak evacuation

 

The UK’s vast Elgin gas field in the North Sea has resumed production almost a year after a leak forced a major shutdown, French operator Total said today.

The renewed flow of gas from the field, which accounted for around 5% of the UK’s total oil and gas production before the accident, gives a timely boost to public finances and growth — but is unlikely to result in cheaper gas bills for long-suffering households.

Total, which operates the field 150 miles off Aberdeen and owns a 46.2% stake in it, battled for seven weeks to stop gas spewing into the atmosphere following the accident on March 25 last year. Total, whose shares are still below the level seen before the leak, estimates the closure of Elgin and the nearly Franklin field cost it around £1 million a day.

The French giant is now set to resume production gradually at around 70,000 barrels of oil equivalent a day, around half of Elgin’s estimated output. It will take until 2015 to get production back to levels seen before the leak, while more stringent safety rules mean Total will have to plug a minimum of 10 wells over the next three years.

Gary Hornby, market analyst at energy broker Inenco, warned that households cranking up the heating in a bitterly cold winter should not expect any relief on bills as a result of the resumption in production.

He said: “Wholesale gas prices jumped by 1.5% on the day of the accident and are still around 15% higher than they were in June last year.  Just because Elgin is back it doesn’t mean that gas prices are suddenly going to fall off a cliff. With the cold winter weather, gas demand has been way above average and we’ve also had  outages in Norway, which means that we have had to take more gas out of  storage. This will have to be replaced, pushing up prices in the summer.”

Japanese demand is also pushing up the price of natural gas after the nation shut down its nuclear power stations following its devastating tsunami two years ago, Hornby added.

The sheer size of the Elgin field meant its closure knocked an estimated 0.2 percentage points off the UK economy last year. Corporation tax revenues are also £3.6 billion down on last year for the first 10 months of the year, partly as a result. ING Bank economist James Knightley said the resumption was “good news on growth and the public finances for the Chancellor ahead of next week’s Budget.” The leak, which forced the evacuation of 238 workers, is thought to have been caused by pipe corrosion because of a reaction between chemicals in the drilling fluid and grease in the pipework, exacerbated by heat and high pressure.

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