Shell, Harbour Energy in arbitration over Urals-linked pricing for West of Shetland crudes
Shell and UK independent Harbour Energy are using an independent referee to resolve differences over how to price the UK’s Clair and Schiehallion crude oil grades after EU sanctions against Russia led to changes to Urals crude oil price assessments published by Platts, Harbour said Jan. 11.
The standoff, which entailed an unsuccessful approach by Shell to the High Court of England and Wales, illustrates the far-reaching knock-on effects of the uncoupling of Russian oil supply from Europe following the invasion of Ukraine.
The EU’s ban on most imports of Russian crude oil led to the collapse of Urals prices in Europe, with the lack of deal-making leading to a change in the Platts methodology for Urals assessments made on a Cost Insurance Freight (CIF) Rotterdam basis. Platts is part of S&P Global Commodity Insights.
The CIF Rotterdam Urals assessment was a component in offtake agreements between Harbour and Shell – both of them owners of stakes in the Clair and Schiehallion fields — a High Court judgement dated Dec. 20, 2023 shows.
The judgment shows Shell sought the court’s intervention in establishing a framework for the selection of an alternative price assessment basis.
“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,” a Harbour Energy spokesperson told S&P Global Commodity Insights.
The use of a Urals assessment to price West of Shetland crude reflects the distinct character of the grades involved, which are heavier than typical light sweet North Sea grades and thus have some similarity to Urals; Clair and Schiehallion have API gravities of 23.3 and 25.7 respectively.
Heavier crudes from the North Sea region have enjoyed a demand boost among refiners partly as a consequence of the outlawing of Urals, with Norway’s Johan Sverdrup, a medium grade, benefiting especially.
Platts still publishes Urals assessments on a CIF Rotterdam basis, but these entail an assessment of loadings in Russian Baltic ports together with a freight adjustment. The company also launched an alternative European Sour Crude Index based on North Sea sour grades in August 2022.
The European Sour Crude Index was assessed at a $2.33/b discount to Dated Brent on Jan. 10, while Urals was assessed at a $13.93/b discount on a CIF Rotterdam basis.
The High Court judgment showed a contractual provision had been made for the president of the London-based Energy Institute to select an independent referee, but the role had been turned down by the institute, leading to the use instead of the London Court of International Arbitration.
The operator of Clair and Shiehallion, BP, together with its partners, have invested billions of dollars in projects intended to boost production from the fields in the last decade. Shell is the second largest owner at both fields, with Harbour holding smaller stakes.
Shell declined to comment.