Shell and Equinor pool resources as North Sea winds down

Last Thursday, the companies announced plans to pool their North Sea assets and establish what will be the North Sea’s largest oil and gas company. However, as Poten & Partners pointed out in its latest weekly report, the joint venture is not growth-oriented. Its objective is to make the most of remaining resources and make the winding-down process over coming decades and the transition to new fuels as efficient as possible.

Shell’s Integrated Gas and Upstream Director, Zoë Yujnovich, explained: “The new company will invest to provide a long-term sustainable future for individual oil and gas fields and platforms. Domestically produced oil and gas is expected to have a significant role to play in the future of the energy system.”

There are significant implications for tanker owners, some positive, some not. In its recent analysis, Poten pointed out that a sizeable share of North Sea output was traditionally shipped on short hauls to nearby countries including Netherlands, UK, Germany and Sweden, mostly in Aframax and Suezmax tankers. However, in 2018/19, China began to buy more North Sea crude, boosting one of the world’s longest tonne-mile trades and providing lucrative contracts for VLCCs.

Chinese demand rose further between 2020 and 2022 when Norway’s giant Johan Sverdrup field came on stream. This new source of medium sour crude was a good fit for Chinese refiners and underpinned further long-haul tanker demand, Poten said.

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However, when Russia invaded Ukraine, the dynamics changed. European countries stopped buying Russian crude oil from the Urals and turned instead to North Sea suppliers. Chinese refiners stepped in to take up the Russian slack. One of the VLCC market’s strongest long-haul trades was no more, although demand for Aframax and Suezmax tankers picked up in Europe.

A new normal in tanker trade has now been established and Poten does not expect consuming nations such as Finland, Poland and Sweden to start buying Urals crude again, even if the conflict in Ukraine ends. Clearly, the North Sea crude would therefore not be available for Chinese refiners, even if they wanted it. Neither would there be any significant boost to long-haul VLCC trades.

While Poten describes the UK North Sea as a rapidly maturing basin, there is still a significant volume of oil and gas remaining, as witnessed by the recent commissioning of the Johan Sverdrup field. But many of the North Sea’s long-established fields are running low.

One of the region’s largest reserves has been the Shell-owned Brent field, almost 103 nautical miles north-east of the Shetland Islands. It produced first oil in 1976 and became one of the most productive North Sea fields for more than 40 years. However, in 2013, Shell set about the task of decommissioning and, in 2017, the first of four platforms, the 24,000-tonne Brent Delta, was removed in one single lift by the 382m-long Allseas’ heavy-lift vessel, Pioneering Spirit.

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Roll on more than a decade and the fourth and final platform at the oil field, Brent Charlie, underwent a similar operation in July this year. After years of meticulous planning, what is thought to be the heaviest-ever single offshore lift of the 31,000-tonne Brent Charlie topside was successfully completed, also by the Pioneering Spirit. The unit was taken to Able UK’s Seaton Port facility in Hartlepool on the UK mainland where more than 97% of materials are being recycled.