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TotalEnergies has suspended production at Edradour, one of four gas fields in the Greater Laggan area west of the Shetland Islands, partner company Kistos said, as the UK gas hub shows signs of significant decline and higher water production.
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The halt at Edrarour was described as temporary by Kistos, a London-listed independent that holds 20% stakes in the Greater Laggan fields.
The hub was brought on stream in 2016 along with a 140 km pipeline to a new 500 MMcf/d gas processing facility on the Shetland Islands. At the time the project was expected to meet 6% of UK gas demand, but plateau production rates fell short of expectations and output in 2022 was nearly two-thirds below the 2018 annual peak, falling to 1.5 Bcm for the year.
Another field in the hub, Tormore, also shows signs of dwindling production, according to official data.
The issue at Edradour is thought to be linked to management of produced water, a source close to the situation told S&P Global Commodity Insights, following a significant increase in water production at all the fields last year.
Kistos, however, underlined hopes for two potential additional projects the partners may make investment decisions on in the coming months: Edradour West and Glendronach.
It comes as the UK government rows back from a punitive upstream windfall tax introduced in 2022 that lifted headline rates to 75%, with the announcement June 9 of a planned price floor, by which the tax will be annulled if prevailing oil and gas prices fall below certain levels.
"Production from the Edradour field has been temporarily suspended due to a technical issue which is expected to be resolved in due course," a Kistos spokesperson told S&P Global Commodity Insights on June 8.
"Within the wider Greater Laggan Area, Kistos and its joint-venture partners continue to progress the Edradour West and Glendronach developments and look forward to updating parties on these later in the year."
The partners are also currently drilling an exploration well in the area known as Benriach, which if successful could help boost production from the hub. Drilling is due to be completed in the third quarter.
Following treatment at the Shetland Gas Plant, Greater Laggan gas is exported to the UK mainland via the Shetland Island Regional Gas Export System (SIRGE), while condensates are exported via the Sullom Voe Terminal, source of the Brent crude stream that remains a mainstay of Platts' Dated Brent benchmark.
The Greater Laggan issues come amid slowing output of the Brent crude blend, sourced from a decreasing number of fields east of the Shetland Islands, after the core Brent field was finally closed by Shell in 2021.
The overall decline in UK gas production in recent years has been less steep than for oil, partly due to the introduction of newer fields such as Culzean and Tolmount. UK sta
I can't believe the UK govt is has decided to link oil and gas. The floor level set for the price of oil ($71.4) is quite low and certainly sub where OPEC+ will want it to be ... Thus UK gas producers will have their tax future dictated to them by another sector of the energy market.... in reality it seems little tax relief will be offered to gas producers and the intability of the tax regime in the UK continues. They should be de-coupled!
Yep, they will have to assume worst case scenario in everything they plan. Possibly makes things more complex. AA needs to get another Norwegian - or anywhere asset quickly.
This seems crazy to have a cliff edge for the WFT, it means we will need a fall in the prices to enable to make a decent profit, if prices go up high enough to make a decent profit with the WFT I am sure another rise will soon come along.
This cliff edge approach and the 2 consecutive quarters will give no confidence to companies for future investment and will need to work of the worst case scenario (ignoring a price crash) of prices just above the floor especially on developments where external finance is required. However I expect no less form Hunt and this government.
It makes the UK gas industry precarious in that anything that causes oil prices to rise, the windfall tax stays regardless of gas prices. Surely someone pointed this out? We effectively have Saudi et al running the UK gas industry now. They can shut it down if they want.
Shipscook1,
My apologies, I have just read the HMG statement and as you say it clearly states 'oil and gas'
The mind boggles...
"The tax rate for oil and gas companies will only return to 40% if both average oil and gas prices fall to, or below, $71.40 per barrel for oil and £0.54 per therm for gas, for two consecutive quarters"
Announcement clearly states AND. Both have to be below price stated. Futile gesture.
Theshipscook1,
I assume that it either/or not both.
So, if NS gas trades at an average of below 54p per therm for a six month period we would pay 40% tax regardless of the oil price.
There is the risk in black and white. This will propel gas producers to still seek out as AA said ..more fiscally stable jurisdictions.
Gas prices fall to some ridiculously low level and oil stays high...WFT remains on gas producers. = Gas producers going bust
My understanding of the scaling back.
1. Windfall tax remains until March 2028 at 75%.
2. The tax rate would fall back to 40% if the average oil and gas prices fall to, or below, a set level for two consecutive three-month periods.
3. The level has been set at $71.40 per barrel for oil and £0.54 per therm for gas.
A huge improvement on the current situation but an incredibly blunt tool which one can only hope will be improved upon.
Surely a sliding scale would have been much fairer rather than the cliff edge proposed ( for example. 50% tax at an average of over $70 a barrel. 60% tax at an average of over $80 a barrel. 70% tax at an average of over $90 a barrel)
Https://twitter.com/surprised_trade/status/1666906779291140096
Government plans to introduce a “floor” on the 35 per cent levy in the coming days so that it only applies if oil and gas prices trade above a certain level. Treasury officials are due to meet the oil and gas industry on Friday
In case people havent clicked the link...putting in a Windfall tax floor. Bit late
Not sure it will make much difference. Hasn't changed how AA views Dutch assets.
Perhaps someone has spotted a flair at Benriach
Some big buys popping up. Leaky? AA got his Norwegian cheque book and pen ready ?
Most likely. Chart looking perky here. A bit of volume and this may be a pleasant end to the week.
I think Norway is where he wants to focus.
Judging by his latest comments I would think not.
AA going to snipe for them, or has he ditched North Sea assets purchases forever?
Looks like someone else 'topped' up over the last 2 sessions. Chunky buying. Ready for AA to turn this around
Small top-up this morning. Down by 47 % but only on paper. Still have belief in AA and his team.
Thanks Thomsk11,
Two great points made by AA
1. A year ago we took home 60p in the £1 of everything we made.
Now we take home 25p.
2. Rachel Reeves says she will scrap allowances and make her windfall tax retrospective.
With no certainty beyond the next general election you would be a fool to commit capital to anything other than near term, rapid return on capital projects.