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Total is to sell its interests in two major North Sea pipelines and a gas terminal for £585 million. What does this mean for UK business consumers?
The FUKA and SIRGE gas pipelines and the St. Fergus Gas Terminal will be sold to North Sea Midstream Partners (subject to approvals), a move that some have seen as another sign of falling confidence in the North Sea’s ageing oil and gas fields.
But Patrick de La Chevardière, chief financial officer at Total, was keen to put a positive spin on the sale, calling it “another example of Total’s strategy of active portfolio management and the strong potential to unlock value from a range of infrastructure assets.”
“Transferring ownership to an entity specialising in midstream UK assets creates value for us and ensures a long and bright future for the facilities,” he added.
A bright future for such infrastructure is far from assured. Following the heyday of the 1970s, many North Sea installations have suffered from a lack of investment, a situation that is compounded by falling yields from fields that are reaching the end of their commercial life.
The 362km Frigg UK Pipeline (FUKA), for example, was originally constructed in 1977 to connect the Frigg Field on the UK-Norway median line to the St. Fergus Gas Terminal in Scotland. The Frigg Field is now decommissioned but the FUKA pipeline is still operational, delivering gas from some 20 fields in the Northern North Sea to the terminal at St Fergus. Total holds a 100% interest in the FUKA pipeline. The St. Fergus Gas Terminal is a 2,648 million cubic feet of gas per day (Mmscf/d) capacity processing plant, currently serving over 20 fields (Total has a 100% interest) and the 234km Shetland Island Regional Gas Export System (SIRGE) connects the Shetland Gas Plant to the FUKA pipeline (Total holds a 67% interest).
As oil and gas becomes increasingly difficult to extract, the involvement of traditional energy firms will likely give way to specialists like North Sea Midstream Partners, which will be better placed to deal with the unique challenges the North Sea poses.
While the North Sea industry is probably past its prime, the predictions of its demise are premature. UK businesses will benefit from secure supplies of business gas for years, although increasing production costs may put business gas rates on an upward trajectory.
As is clear from our fuel price tracker, gas prices have recently plateaued amid the ‘dash for gas’, most obviously embodied in the UK shale gas (‘fracking’) revolution. But, as the infographic shows, unexpected events, such as the Russian annexation of Crimea, can have a significant impact on the prices UK SMEs pay.
While gas prices are low, small to medium sized businesses would be well advised to search out a new contract. Even those liable to pay contract exit fees may find it cheaper in the long run to change business gas suppliers.
Find out more about business gas at our dedicated page.
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