Steel yourself for the next shock

Many moons ago when doing a site visit in one of the ‘Stans, which shall remain nameless, we stopped to look at some road-side oil pipes, which were visibly heavily corroded on their upper quadrants. Baffled by this, I asked the interpreter. Happily, the pipes were not part of the project I was visiting, but an adjacent one. Less happily, the explanation was that the pipes tended to corrode on the underside where small sags caused water pooling and damage…. rotating the pipes 180 degrees extended their useful life in an area where capex was not readily available for replacement. Scary indeed.

According to the FT, roughly 40% of the UK’s North Sea crude flows ashore via the 42 year old Forties pipeline. I guess it is named after the iconic field not its age, although it is the latter that might make it infamous.

You have to wonder about the unfortunate timing: Ineos have only been owners/operators for 0.5% of that time, and on their watch a robot detects a hairline crack, forcing remedial work and subsequently a shut-down. I wonder what their SPA / insurance says about that scenario…

The markets reacted predictably to a 450k bopd supply-side outage, with a blip. True, in a world of abundance, this is nothing more than a blip (although pity poor Ineos, who may see it a bit differently), but as you may recall, I don’t buy into the “abundance” theory. However, in quick succession a gas hub exploded in Austria – although there is no indication of cause at this stage.

Step back a bit – and I recall reading a post/article/newsletter not more than 2 or 3 months ago (which, maddeningly, I can’t source now of course) saying that the single biggest threat to world oil supply was not any of the usual suspects, but steel… and specifically the aging steel of the US oil and gas infrastructure. The read across to many other key areas of oil production is obvious – vast amounts of key infrastructure is old and aging. The Forties pipeline is just one example, albeit a critical one. Indeed, what is critical about Forties Pipeline is that it is a gathering system for some 80 producing fields – none or which would be economic if not for the pipeline. The flow of oil to the world (and yes, we do still need it despite what the mainstream media would have you believe), is dependent on many, but not a lot, of such pipelines.

It doesn’t take much googling (herehere and here) to see that this is a “tip-of-the iceberg”, and/or the “canary in the coal mine” issue: to use two wholly inappropriate metaphors.

The recent oil price bust has resulting in visible capex cuts in all upstream areas from exploration to production. These have been “unprecedented” in scale and the impact is likely to be seen in future supply shortfall (which I have written about elsewhere). However, it is likely that there has been an equivalent albeit less visible reduction in maintenance capital applied to mid-stream. Notwithstanding the excellent HSE procedures and protocols of oil operators, it is not a good combination: aging, late-life infrastructure and low oil prices.

To all my colleagues and readers who know far more about surface facilities than me; a question. How likely is it that there is just one hairline crack in a 42 year old, 170km long pipeline?