The UK’s Orkney Islands, which lie just a stone’s throw off Scotland’s northern end, seem far away indeed from any major contact with the global oil and gas industry. But that’s just an illusion.
In fact, the Orkney Islands are playing a role, whether major or minor remains to be seen, in helping to stabilize the global price of oil these days.
While the Organization of Petroleum Exporting Countries is trying to boost oil prices by implementing production cuts, its efforts are being stymied by inventories of 80 million bbl held on ships in the North Sea, the US Gulf of Mexico, the Mediterranean, off West Africa…
…and in the Orkney Islands, where a ship-to-ship transfer of North Sea Forties oil from one very large crude carrier (VLCC) to three receiving vessels started last week in Scapa Flow.
Stored oil
According to the Orkney Islands Council Department of Harbours (CDH), the VLCC Eagle Vienna, which has been on long-term storage anchorage in Scapa Flow since Dec. 14, 2008, started transferring 1.8 million bbl of Forties oil on Feb. 23.
“The three receiving vessels the British Falcon, the Nordic Jupiter, and the Hero 1 will all receive crude oil cargo over the next 6 days,” commencing with the British Falcon Monday afternoon, the CDH said.
CDH didn’t identify the parties taking part in the transfer, but earlier this month, traders said that BP PLC, which chartered the Eagle Vienna, sold three Forties cargoes from the supertanker.
Just a week earlier, ConocoPhillips was set to load a supertanker with 1.8 million bbl of Norwegian Ekofisk oil, combining three cargoes, probably for storage and sale later, ship brokers said.
CDH said the 300,000-dwt Malaysian VLCC Bunga Kasturi Dua would arrive in Scapa Flow and load two cargoes of Ekofisk in a ship-to-ship transfer from one of its own vessels and one cargo from an Italian Aframax.
Softens the market
The VLCC, which brokers said has been chartered to ConocoPhillips on a 2-year time charter, would complete loading and would then probably stay in Scapa Flow for longer-term storage.
Oil stored in Scapa Flow is part of 20 million bbl of North Sea oil currently stored in Europe on supertankers, creating a readily available source of supply that has helped keep a lid on North Sea crude benchmark prices.
As soon as oil prices rise, some of this floating inventory is sold off to take advantage of the rise, causing prices to fall again.
According to Michael Wittner, head of global oil market research at Societe Generale: “Whenever you see a bit of firming in the physical market, some of that (stored) physical crude is sold to the market, which then softens up the physical market again.”
That’s how the distant Orkney Islands fit into the current picture of global supply and demand.