Scottish oil production stops as two-day refinery strike looms

One-third of North Sea oil production began grinding to a halt last night and will be sharply reduced for weeks after Ineos shut down the Grangemouth refinery in Scotland to prepare for a two-day strike this weekend.

"As of tonight, the Grange-mouth facility is shut down. Fuel production in Scotland has ceased," said an Ineos spokesman. The company shut down Scotland's only oil refinery after failing to reach agreement with the 1,200 workers over its attempts to reduce pension contributions.

BP warned that it would begin shutting down the Forties Pipeline System (FPS), through which one-third of all North Sea oil and gas flows, by midday today.

Its terminal at Kinneil, next to where the pipeline comes ashore, relies on the Grangemouth complex for steam and electricity.

"If there is not full steam and power, the Forties Pipeline System will have to be turned down or off," said a BP spokesman. Ineos' decision to shut down the facility, the size of which means the process takes several days, makes the BP pipeline closure a certainty. News that the strike would go ahead, set for Sunday and Monday, led to widespread panic buying of petrol throughout Scotland.

The Government attempted to assuage fears yesterday, assuring people that it had enough reserves to cover the expected shortfall.

John Hutton, the Business Secretary, said: "Our best assessment is that, at present, there is no need for the Government to take further steps under its emergency powers. We have contingency plans in case of need and we are determined to respond effectively if this becomes necessary."

The Unite union has made a concession to keep the refinery "warm" so that it can be fired up again quickly once the strike is over. That would allow the terminal and pipeline operation to resume relatively quickly.

However, North Sea operators, including Conoco-Phillips and Marathon, warned that they would have to cut or stop production at their oil rigs if the pipeline was shut down. It is unclear how long it will take before these are operating again at full capacity.

Ineos said yesterday that the Grangemouth site itself will take three weeks to regain full production. The shutdown is expected to push up petrol prices that are already near record highs. Forward wholesale gas prices, up more than 50 per cent already since the beginning of the year, jumped by 10 per cent on expectation of the impending shutdown.

The dispute between Ineos and its workers erupted over the company's attempts to end its final-salary pension scheme. Talks, brokered by the arbitration body Acas, ended on Wednesday without agreement. Ineos has argued that it needs to end the pension scheme to help pay for a £750m upgrade of the site.

The shutdown will have wide-ranging effects. BP, Royal Dutch Shell, BG, Marathon Oil, Total and ConocoPhillips all operate offshore rigs that feed into the Forties pipeline.