UK Shetland Islands tout green energy solution for aging Sullom Voe terminal

The UK Shetland Islands are seeking a new greener role supporting the oil and gas industry as loadings decline at the Sullom Voe terminal and doubts grow about BP's use of the aging and costly facility for shipping crude from the giant Clair field.

The Sullom Voe site on a former World War II air field began use as an oil terminal in 1975, originally loading as much as 1.5 million b/d from fields such as Brent and Ninian.

But volumes have declined. The Brent field, from which the Brent crude benchmark gets its name, produces just a trickle, and the last Brent platform is expected to stop producing this year.

Crude derived from other fields in the area will continue to be sold as Brent blend, but volumes have long been overtaken by the Forties crude stream, loaded near Edinburgh.

Sullom Voe's future is increasingly linked to more recent oil and gas projects in Atlantic waters west and north of the islands.

The giant Clair field, which spans 85 square miles (220 square km) and produces a heavier crude than that from the North Sea, accounts for almost as much oil loaded at Sullom Voe as North Sea crude. Clair production, which comes through a pipeline to the terminal, ran at around 70,000 b/d in the middle of last year following a revamp.

But this important revenue stream for Shetland is in doubt as BP considers whether to bypass the islands and send the crude straight to market from offshore loading facilities used at many UK fields, a decision it took with the Schiehallion field in 2017. Unlike with Brent, Sullom Voe serves no role separating out gas or impurities from Clair crude, which is done offshore.

In a telephone interview, Alastair Cooper, chair of the Shetland Islands Council's development committee, predicted a "steep hill to climb" in talks with BP.

The cost of operating the terminal "is where the real problem lies," Cooper said. "The real discussion is basically can Sullom Voe Terminal offer a tariff such that it stacks up for BP against the other options. I live in hope, but I'm aware that it's going to take a lot of work to make it happen."

He noted one problem is Sullom Voe's reliance on a power generation plant that runs on expensive diesel, from which emissions are supposed to be curtailed by 2025.

BP said Clair was expected to continue producing oil beyond the life of the Sullom Voe terminal, and for at least another 40 years, while a third development phase, Clair South, is being considered.

"In order to safeguard oil export from the Clair field for the long term and facilitate a decision around a potential third-phase development, we and our Clair partners are evaluating a number of technical options...including continued use of Sullom Voe Terminal," BP said.

"We want to ensure we have all the information we need and unfortunately we are not there yet," it said, adding it was seeking a "long-term and commercially viable export solution."

GREEN REVAMP

One response from the Shetland Islands Council is to promote a renewable energy plan, combined with interconnectors from Norway or the UK mainland, which it says could supply power to new oil and gas projects under consideration.

These technically daunting projects include Rosebank, which is being considered by Norway's state-controlled Equinor, and Cambo, led by independent Siccar Point Energy.

Hundreds of millions of barrels of oil are still thought to lie in such West of Shetland fields, and the industry is said to be keen on the Shetland Islands' plans for a "green energy hub" that would provide it with electricity.

Equinor has already implemented similar projects at Norwegian facilities such as Johan Sverdrup, and is developing the UK's largest offshore wind farm, Dogger Bank.

The UK authorities are also pressuring the industry to curtail emissions, which account for as much of 10% of UK emissions related to power generation, reflecting the use of diesel generators at remote oil and gas installations.

"We're going to put a lot of effort in in the next two to three years to see the extent to which we can capitalize on our green business," Cooper said. "It's what can we do on the margins to keep the industry interested in Sullom Voe."

But progress on renewables in the Shetland Islands has been "painfully slow," according to Shetland business consultant Andrew Blackadder, of AB Associates, who notes that other island communities such as Orkney have been quicker. In September, the UK government rejected an application by wind power venture Viking Energy for a "contract for differences" that would provide price support for a Shetland wind farm.

EnQuest, which took over Sullom Voe from BP in 2017, said it was pressing ahead with adaptations to ensure the terminal's competitiveness.

"We are focused on right-sizing the terminal to ensure it remains fit for purpose and cost competitive, maximising its value for the long term," it said.

Blackadder said the Shetland Islands Council had now stepped up its efforts to promote its green energy hub and levels of offshore oil and gas exploration also gave cause for hope for Sullom Voe.

But he said plans to provide renewable electricity to offshore facilities entail "a lot of change, a lot of investment, and a lot of risk," and the oil industry was likely to continue hedging its bets and looking at alternatives.