January 12, 2024 [The Print]- Shell and independent UK company Harbour Energy are engaged in arbitration to settle disputes over the pricing of the UK’s Clair and Schiehallion crude oil grades.
According to S&P Global Commodity Insights, this conflict arises as a consequence of EU sanctions against Russia, which triggered changes in Urals crude oil price assessments by Platts, affecting the pricing mechanism for West Shetland crudes, as revealed by Harbour Energy on January 11.
The EU’s ban on most Russian crude oil imports resulted in a collapse of Urals prices in Europe, prompting alterations in Platts’ methodology for Urals assessments based on a Cost Insurance Freight (CIF) Rotterdam basis.
Both Shell and Harbour Energy, stakeholders in the Clair and Schiehallion fields, had offtake agreements linked to the CIF Rotterdam Urals assessment.
Despite an unsuccessful attempt by Shell to involve the High Court of England and Wales, the situation underscores the ripple effects of the decoupling of Russian oil supply from Europe following the Ukraine invasion.
The High Court declined to intervene in the pricing dispute, prompting the use of an independent referee to resolve the matter.
“We were pleased that the [High] court granted judgment in our favour on this issue, and we look forward to fully resolving this matter as soon as possible,” stated a spokesperson from Harbour Energy.
The unique nature of the Clair and Schiehallion crude grades, which are heavier than typical North Sea grades, led to the use of an Urals assessment for pricing West of Shetland crude.
The API gravities of Clair and Schiehallion are 23.3 and 25.7, respectively, resembling the characteristics of Urals crude.
Platts continues to publish Urals assessments on a CIF Rotterdam basis, incorporating loadings in Russian Baltic ports along with a freight adjustment.
In response to the changes in the market, Platts introduced an alternative European Sour Crude Index based on North Sea sour grades in August 2022.
The arbitration process involves the London Court of International Arbitration, as the contractual provision for an independent referee, initially offered to the president of the London-based Energy Institute, was declined.
The investment by BP, the operator of Clair and Schiehallion, along with its partners, has amounted to billions of dollars in projects aimed at boosting production from these fields over the last decade.
Shell holds the second-largest ownership stake in both fields, with Harbour Energy holding smaller stakes.
Shell has chosen not to comment on the ongoing arbitration proceedings, leaving industry observers anticipating the resolution of this pricing dispute that exemplifies the intricate challenges arising from geopolitical and market dynamics.
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