The BBC report Wednesday evening that talks have broken down between Ineos, the operators of the Grangemouth oil refinery in Scotland and Unite, the trade union representing workers at the refinery who are threatening to strike Sunday and Monday over a dispute about adjustments to their pension scheme.

Grangemouth lies at the end of the Forties oil pipeline system that gathers oil (and liquids) from oil and gas fields throughout a large area of the Central North Sea. Whilst Grangemouth processes around 200,000 bpd the pipeline system handles around 700,000 bpd and according to this CNN report, a BP spokesman has said they may have to shut down the whole pipeline system. With the global oil market and European gas market already stretched, the impact of this dispute may reverberate around the world.

Why Grangemouth is important

Grangemouth is much more that an oil refinery. Originally operated by BP, Grangemouth became an integral part of the Forties oil production, transportation, refining and export system. BP has since sold the Forties oil field to Apache corporation and the refinery to Ineos but it still operates the pipeline and a number of the oil and gas fields that feed into it.

Ineos have reported that if the refinery is closed it may take over a week to restart. So a two day dispute over pensions may have a disproportionate impact.

If as reported by CNN, the whole Forties pipeline system were to close then this will shut down about half of the UK oil and a significant amount of gas production. World oil supplies are already stretched and this will push prices even higher - but the UK will be able to buy oil on the international market. I have heard that BP is trying to determine whether the Hound Point terminal has the storage capacity to handle the flow and offload from there without taking the system down. The thinking is, if only the Grangemouth refinery shuts down, and Hound Point and its oil storage facility operate normally, oil and gas production losses could be minimised.

The situation with natural gas is much different. Prices have been rising steadily this year betraying tightness in the European and Global gas markets. At the end of the winter UK and European gas storage is run down and the UK may struggle to maintain gas supplies.

Domestic users need not worry since they will always be the last to get cut off. But in the event of a natural gas shortage, those industrial users who pay the reduced interruptible supply tariff may just find their supplies interrupted.

Consequences for fuel supplies in Scotland and North England

Grangemouth is the only oil refinery in Scotland producing gasoline, diesel, fuel oil and jet fuel for the whole of Scotland, Northern Ireland and Northern England. UK has ample stocks of refined fuel and so the real issue for Scotland is the distribution of these stocks. This has been the main focus of the main stream news thus far and panic buying has already led to local gasoline shortages and profiteering at the pump.