Disruptions as remote as a hairline fracture on a piece of Scottish pipeline, and an explosion in an Austrian natural-gas plant, have consequences felt around the world, as oil and gas supplies tighten during the northern winter.After Ineos, a chemicals company, discovered a growing crack on a piece of pipe near Aberdeen, on December 11th, it said it would shut the main Forties pipeline carrying North Sea oil and gas to Britain for weeks.
The postponement of a pipeline carrying 450,000 barrels a day (b/d) of crude, in a global market of almost 98m b/d, would not normally be disruptive; yet, the benchmark for pricing much of the world’s seaborne crude, Brent crude, is itself partly priced on the flow of crude from 80 fields that feed the Forties pipeline, magnifying the impact.
Futures prices for Brent crude delivered in February and March increased to two-year highs, above $65 a barrel, before falling back. This stressed how little slack the market has, after the extension last month of a production cut by OPEC, the producers’ cartel, Russia and other petrostates.
A consultancy, Ann-Louise Hittle of Wood Mackenzie, stated that some European refineries rely on Brent crude to produce heating oil for sale in Germany and elsewhere. Suddenly half a million barrels are out of action at a delicate time going into winter and those refineries may now receive some shipments of American crude.
The mishap also drew special attention to the fragility of the Brent benchmark, which is priced based on demand for four types of crude produced in ageing North Sea fields running through pipelines dating from the 1970s.