Brazilian port operator Prumo is demanding unspecified damages and back payments for services rendered to Shell at its offshore oil terminal at Açu in Rio de Janeiro, the company said today in a securities filing.
Prumo says Shell unilaterally stopped crude transshipment operations at the port following a 4 May leak during the 19th operation under a 2015 20-year take-or-pay agreement between Prumo and BG, now part of Shell.
Shell has failed to pay invoices issued between June and August and is "trying to get financial discounts and other commercial advantages of Açu," Prumo said.
The European major defended its decision.
"The decision [to halt operations] was taken in May because the infrastructure and the procedures adopted by the [Açu] port were not in accordance with Shell's safety standards - and thus do not comply with the provisions and procedures established in the contract - as evidenced by three incidents in 17 operations since August 2016," Shell said. "This decision will be maintained until the parties reach an agreement on the implementation of the Shell safety standards, as provided for in the original contract."
Shell tells Argus that crude cargoes that would have been handled at Açu have been redirected to Uruguay or to offshore ship-to-ship (STS) operations in Brazil.
Last week Shell received authorization from the Sao Paulo state tax authorities to carry out STS operations in the Santos basin, where the lion's share of its sub-salt production in located. STS newcomer Fendercare, a division of UK maritime specialist James Fisher, has already carried out four operations for Shell this year, according to a local shipping executive.
Shell carried out 10 transshipment operations at Açu in 2016, and had estimated it would conduct 37 this year.
At the start of 2017, the company estimated around 40pc of its crude exports from Brazil would pass through Uruguay, with the remaining 60pc through Açu.
The company declined to comment on its new outlook for STS operations in Uruguay.
Shell, Brazil's largest oil producer after state-controlled Petrobras, estimates its share of production in Brazil will top 400,000 b/d of oil equivalent (boe/d) in 2020, up from the more than 350,000 boe/d the company and BG currently produce.
Limited transshipment options in Brazil have forced Shell and other foreign producers such as Portugal's Galp to conduct STS operations of Lula, Iracema and Sapinhoá sub-salt crude through La Paloma, Uruguay. But weather conditions and the three-day journey heighten risks of costly bottlenecks.
Complex environmental regulations, monitored by federal environmental agency Ibama, make obtaining permits for offshore transshipment notoriously difficult in Brazil. Petrobras is one of the few firms authorized to carry out such operations in Brazilian waters, through private-sector terminals in the northern city of Vitória and the southeastern port of Santos. Other challenges include a requirement to use dynamic positioning vessels and Brazilian flagged and crewed cabotage tankers.
"Prumo's objective is to provide the oil and gas industry the best environmentally sustainable alternative to STS oil transfers, in order to reduce the risk for Brazil of the potential disaster of an oil spill arising from competing transactions in the open sea. It is important [to] emphasize that these offshore operations conducted by competitors do not have infrastructure or emergency response systems comparable to the security features offered in Açu," Prumo said.
The Açu offshore oil terminal is licensed to handle up to 1.2mn b/d of crude and currently has capacity for Suezmax vessels. The company says the terminal will be able to receive VLCCs by early 2018.
Açu has been billed as a base to accommodate Brazil's rising sub-salt production. Shell
remains the only firm with a transshipment agreement with Prumo, but the port's proximity to high-production offshore basins and the lack of alternatives makes it likely other firms will eventually follow suit.
In October 2013, US investment fund EIG paid 1.3bn real ($596mn) for a controlling stake in Prumo, then known as LLX.
LLX had been part of Brazilian magnate Eike Batista's defunct EBX commodities empire.
