Shetland Islands Council faces a £5.5million chop to its budget next year after BP decided to ship oil to the lower-cost Port of Rotterdam rather than the Sullom Voe Terminal.
Mark Boden, the chief executive of the council, said the move to ship oil from BP’s rejuvenated Schielhallion oil field next year to the Netherlands on a permanent basis would cut revenues at the Sullom Voe harbour by 20%, making annual profits of £5.5million “disappear”.
He said: “We can’t afford that to happen. That is a lot of schools and care homes.
“But also it would be wrong. We have an awful lot of public money tied up in that harbour.
“It is not the job of the Shetland rate payer to subsidise the oil and gas industry,” he said.
He said the council had called for meetings with the owners of the oil terminal – a consortium including Aby Dhabi oil firm Taqa, Canada Natural Resources, BP, Total, Shell and Esso – to raise prices at the harbour in order to make up the shortfall. However, this is unlikely to be popular with oil majors struggling with the effects of the oil price crash.
“The obvious plans is we will put of charges on the remaining tankers,” he said. “That we can do quickly. We can’t afford to hang about here.”
Oil from the West of Shetland field, which includes production from the neighbouring Loyal field stopped in 2013. This was in preparation of a massive £3billion rejeuvenation project known as Quad 204, designed to extend the life of the field another 20 to 25 years.
Initially, BP has said it would initially ship oil to Rotterdam for a year when the field restarts production next year. But now the oil and gas giant has said it will not return to shipping oil the Sullom Voe, although it will still continue to pipe gas to the terminal from the fields through an existing pipeline.
BP cited “technical reasons” – and cost – for the move.
In a statement it said: “This decision has been taken to maximise economic recovery from the Schiehallion and Loyal fields through enabling lower production costs over the long-term.
“Gas from Schiehallion will continue to be exported via the Sullom Voe Terminal.”
A spokeswoman added the firm remained committed to its ownership stake in the terminal.
Before the fields were shut in, the oil was shipped to the terminal via the harbour with the Loch Rannoch tanker, a familiar sight in the harbour.
Alistair Carmichael, Northern Isles MP, will meet with the council Thursday and has already written to the Chief Executive of the Oil and Gas Authority (OGA) calling for an early meeting between industry and community interests to discuss the loss of business at Sullom Voe and the future prospects of the terminal.
Mr Carmichael said: “The loss of Schiehallion’s business is bad news for the local industry and the wider community.
“It is vital, therefore, that we address these problems immediately so we are prepared for any more shocks in the industry.
“I want to see the Oil and Gas Authority getting round the table with all interested parties from the industry and local community as soon as possible to discuss ways that we can handle these change in circumstances.
“Whatever the situation today the oil industry still needs a viable terminal at Sullom Voe and Shetland needs that too. We therefore have a common interest to pursue.
“The Oil and Gas Authority is the body that has strategic responsibility for this and they need to act with some urgency. All in Shetland want to see a stable terminal on the isles.”
A spokesman for the OGA spokesperson confirmed that it would meet with Mr Carmichael next week. He said: “Securing a viable long term future for the Sullom Voe terminal is one of the immediate priorities for the Oil and Gas Authority (OGA).
“In pursuit of this the OGA has, for some time, been leading monthly meetings of the managing directors of the Sullom Voe owners and users to agree a new model that can secure the terminal’s future.
“We welcome the constructive commitment being shown by the owners and users to find a solution which will be good for the UK, the companies using the terminal and for Shetland.”
Shetland MSP Tavish Scott said: “I spoke with BP yesterday and expressed my disappointment that the oil from Schiehallion will bypass Shetland.
“It means we must make Sullom Voe more competitive to win work.
“It also reflects the reorganisation of the terminal which means in short it will depend more on work from the west of Shetland in the future.”
The Schiehallion and the nearby Loyal fields are 110 miles west of Shetland and are thought to hold 450million barrels of oil.
The two fields pumped out 400million barrels of crude between 1998 and 2013, when production was halted.
It’s been more than a decade since the oil and gas industry donated millions to the Shetlands’ “oil fund”. Now much of the contribution made to the coffers of Shetlands Islands Council comes from port revenues.
These are now set for a 20% cut due to BP’s decision to continue shipping oil to Rotterdam rather than returning to Sullom Voe once production -restarts next year.
Mark Boden, the chief executive of the council said the industry does contribute an estimated £62million to the islands’ economy, for which he is grateful. But this figure is actually small fraction of the region’s more tradition fishing and aquaculture industry, which kicks in closer to £330million a year, he said.
The council is angered that BP’s decision to ship oil from its Schiehallion fields to the Port of Rotterdam was taken without consultation.
“We didn’t know it was coming,” he said.
“We were told a week Friday and that was the first we knew of it.
“The disappointment for us was that in doing that they didn’t involve in conversations the operator of the Sullom Voe terminal harbour – which is us.”
The oil fund, which Mr Boden describes as “ancient history”, and the nationalisation of rates payable by the Sullom Voe terminal owners by the Thatcher government, means that port revenues are the main contribution the industry now makes to council coffers.
“You need to draw a distinction between Shetland on one hand and the Shetland Islands Council on the other.
“From the point of view of Shetland, the oil and gas industry provides a number of really well paid jobs and makes an important contribution to the economy.
“In terms of Shetland it is really important and really valued. In terms of the council they don’t contribute anything. We just charge them for the harbour.”
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