Shell, BP change terms of North Sea trading
BY BEN WINKLEY
LONDON --Two of the biggest trading companies in North Sea crude changed the way they do business in the region, effective Monday, in an attempt to support the position of benchmark Brent as the price setter for billions of dollars in trade each day.
The U.K.'s Royal Dutch Shell, a big operator and trader in the North Sea, has updated the terms and conditions under which it has been trading with counterparties in the North Sea since 1990, adding a quality premium adjustment to forward contracts for three of the four key regional grades.
The quality premium will be added to cargoes of Brent, Ekofisk and Oseberg, and Shell hopes this will provide an incentive to sellers to provide more cargoes of those grades to buyers. Previously incentives to provide these three grades were low because Forties, the most widely traded of the four grades, known as BFOE, was usually cheaper.
Shell hopes the move will allow for "higher liquidity and better price discovery" in a physical market that feeds through to the setting of Dated Brent, which is used to price the majority of the world's crude oil.
BP, another big trader in the North Sea, agreed with Shell's move, saying in a statement that "these changes will improve the effectiveness of the Brent contract as an international price benchmark."
Underlying Shell's move is an ongoing effort to address the issue of declining production in the North Sea basin. This has more than halved since December 2002, according to the International Energy Agency, and this has raised concerns that such comparatively small volumes should have such sway on global markets.
The four grades are normally loaded under the terms and conditions of the field operators; Shell for Brent, BP for Forties, Norway's Statoil for Oseberg and ConocoPhillips for Ekofisk. Cargoes are normally 600,000 bbls.
ConocoPhillips declined to comment. Statoil wasn't immediately available to comment.
Dow Jones Newswires