Buyers’ market may stymie UK pipeline plans

Author Ben Winkley

The UK government’s sale of its stake in cross-Channel train operator Eurostar serves as a reminder that when it comes to paying down the national debt, few things are sacred.

The UK government’s sale of its stake in cross-Channel train operator Eurostar serves as a reminder that when it comes to paying down the national debt, few things are sacred.

But with a general election just two months away, things are not looking so rosy for another of the government’s planned sell-offs. The Government Pipeline and Storage System (GPSS) is some 2,000 kilometres of operating pipelines and 15 connected storage sites that receive supplies from some of the major refining centres and port areas in England.

A hangover from the Second World War, the main point of the GPSS is to ensure the UK’s strategic and defence needs but it also generates commercial income from spare capacity, generally under long-term contracts. For example it distributes around 40pc of jet fuel within the UK, including to London Heathrow. This is big business and, despite the strategic interest, one the government appears keen to get off the books.

In early 2014, the Ministry of Defence did some sounding out and found what it called “a significant level of interest” in purchasing the GPSS. So the entire system was put up for sale in July last year, with a target of getting a deal done and dusted within that financial year. In other words, before the election.

With just days remaining before Parliament is dissolved, there is no sign of a deal being done. Those who expressed an interest in acquiring the GPSS in early 2014 may not be so keen after 12 months that have turned the energy world on its head. For companies keen to shore up their balance sheets, midstream assets are disposable items not collectibles, as demonstrated by BP’s plan to sell its stake in the Cats natural gas pipeline in the UK North Sea and a swathe of deals in the US midstream sector.

This means it’s a buyers’ market for pipelines, so the UK may go to the polls with the GPSS still in public hands.

For more information, please contact OilBlog@argusmedia.com

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