The halt of Total SA (FP)’s Elgin platform in the North Sea after a gas leak may deny the Brent crude market the relief that was set to come with resurgent Libyan oil exports, according to BNP Paribas SA.
Total said it would take at least six months to drill an emergency well to staunch escaping gases unless the matter resolves itself in a matter of days. Royal Dutch Shell Plc (RDSA) shut down the neighboring Shearwater field after a two-mile exclusion zone was declared. The Elgin-Franklin fields off the coast of Scotland provide about 15 percent of the Forties blend, one of the crudes used to price the Brent benchmark for more than half the world’s oil.
Brent crude prices, which would have been tempered by increasing shipments from Libya, are more likely to maintain a structure signaling limited prompt supply as a result of the Elgin shutdown, BNP Paribas said. Immediate supplies have been costlier than later deliveries, a condition known as backwardation, since mid-January.
“This throws an interesting spanner in the works of those who were thinking that the front end of the Brent curve would soften as a result of the return of Libyan oil,” Harry Tchilinguirian, the London-based head of commodity markets strategy at BNP Paribas, said in a telephone interview today. “The likelihood is that Brent retains its backwardation despite the full return of light Libyan oil on the market.”
Brent contracts for settlement in May are 74 cents more expensive at $125.41 a barrel than those for June settlement, according to data from the ICE Futures Europe as of 6:40 p.m. in London. The backwardation between first- and second-month Brent contracts has averaged 52 cents this year.
The Elgin disruption comes after the deferral of Forties crude cargoes as a result of a platform upgrade at Nexen Inc.’s Buzzard oilfield, which also contributes to the Forties blend, Tchilinguirian said.
“Absent the outages at the Buzzard field or at Elgin, we’d have expected a softening of the backwardation in the Brent curve,” he said.
The Elgin-Franklin fields produced a daily average of 61,386 barrels of oil condensate in November, according to the most recent government data. That’s about 15 percent of all Forties shipments that month, loading data show.
“The outage at Elgin may compound strength afforded to the Brent complex by issues we’ve seen at Buzzard, notably a further deferral of cargoes,” according to Tchilinguirian. “There’s potential for a steepening backwardation in Brent should we get additional cargoes deferred on top of those that have already been deferred at the Buzzard field.”
Total is the operator of Elgin-Franklin. Other shareholders are Eni SpA (ENI), BG Group Plc, EON AG, Exxon Mobil Corp., Chevron Corp, Dyas AS and Summit Petroleum Ltd.
(Source: Bloomberg Businessweek)