A cost-cutting move by offshore giant BP has blown a multimillion-pound hole in a local authority’s budget.
Shetland Islands Council faces losing out on £5.5million after the company pulled the plug on its oil shipments to the huge Sullom Voe terminal.
The firm will instead transport supplies from the Schiehallion field to Rotterdam in the Netherlands.
That will mean a 20% revenue cut for the council-owned harbour at Sullom Voe – and have a major impact on the local authority’s spending plans.
Last night, the loss of business was described as a significant blow to the islands amid calls for the Oil and Gas Authority to step in an ensure the terminal’s future is secure.
Mark Boden, the chief executive of Shetland Island’s Council, said BP’s decision to divert shipments from the rejuvenated Schielhallion field to Holland on a permanent basis would make the harbour’s 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 the council was already considering raising tariffs at the harbour and wants urgent talks with the owners of the oil terminal – a consortium including Abu Dhabi oil firm Taqa, Canada Natural Resources, BP, Total, Shell and Esso.
But any move to increase harbour rates is unlikely to be popular with oil majors struggling with the impact of the oil price crash.
Mr Boden said: “The obvious plan is we will put up charges on the remaining tankers.
“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 in preparation for a £3billion rejuvenation project known as Quad 204, designed to extend the life of the field another 20-25 years.
Initially, BP has said it would ship oil to Rotterdam for a year when the field restarts production next year.
But now the company has said it will not return to taking oil to Sullom Voe, although it will still continue to pipe gas to the terminal 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.
Orkney and Shetland MP Alistair Carmichael will hold talks with the council on Thursday and has already written to the chief executive of the Oil and Gas Authority (OGA) calling for an early meeting between industry and the community interests to discuss the loss of business at Sullom Voe and the future prospects for 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 the 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 OGA said: “Securing a viable long-term future for the Sullom Voe terminal is one of the immediate priorities for the Oil and Gas Authority.
“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 have spoken to BP 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 Loyal fields are 110 miles west of Shetland and are thought to hold 450 million barrels of oil.
The two fields pumped out 400 million barrels of crude between 1998 and 2013, when production was halted.
Where the money comes from
It has been more than a decade since the oil and gas industry donated millions to Shetland’s “oil fund”.
Now much of the contribution made to the islands council comes from port revenues.
These are now about to be cut by 20% 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 Shetland Islands Council, said the industry did contribute an estimated £62million to the local economy.
But the figure is actually a small fraction of the region’s more tradition fishing and aquaculture industry, which pumps in closer to £330million a year.
The council is angry 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,” Mr Boden said.
“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 described 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.
Mr Boden said: “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.”