UK to maximise the North Sea oil and gas industry

UK Prime Minister, David Cameron, will commit to essential steps to increase the economic benefits from North Sea oil and gas, which the Wood Review argues could be worth up to £200 billion over the next two decades.

By accepting and fast-tracking the main recommendations of Sir Ian Wood’s review into maximising North Sea revenue, the government can support the industry to recover 3 - 4 billion additional barrels of oil.

Oil and gas investment

The UK government can afford to support the industry and make it profitable to extract oil and gas from the North Sea, thanks to its large consumer and tax base. Such investment would allow the UK to extract the highest estimates of recoverable oil reserves as possible.

The government has already provided large tax incentives to support extraction as part of its long-term economic plan. These incentives include:

• A £3 billion allowance for large and deep fields such as those west of Shetland.
• A £500 million allowance for large shallow-water gas fields.

The government has also provided certainty on decommissioning relief worth £20 billion.

Stable environment

This process has already started to unlock billions of pounds of investment and will guarantee the value of North Sea oil and gas for a long time to come, providing a stable environment for the industry to plan and invest. It will also secure thousands of jobs in Scotland and across the rest of the UK.

The measures announced include:

• A joint commitment between the government and the industry to ensure production licences are awarded on the basis of recovering the maximum amount of petroleum from UK waters as a whole rather than just each individual licence block.
• Greater collaboration between industry and government, for example by better sharing infrastructure, geophysical information and cutting red tape.
• A new independent regulator to supervise licensing and ensure maximum collaboration between companies to explore, develop and produce oil and gas.

These steps will increase the UK’s energy security and reduce the country’s reliance on imported oil and gas, which is one of the main drivers pushing up electricity and power bills.

Comments

David Cameron commented: “For many years the UK has supported the North Sea oil and gas industry and we have worked together to make this an economic success the whole country can be proud of. I promise we will continue to use the UK’s broad shoulders to invest in this vital industry so we can attract businesses, create jobs, develop new skills in our young people and ensure we can compete in the global race.”

Energy Secretary, Edward Davey, added: “Britain will still need large amounts of oil and gas, even as we cut our carbon emissions over the coming decades. So with recent large falls in North Sea production, I commissioned this report from Sir Ian Wood to see how we can reduce the oil and gas we would otherwise import by boosting UK offshore production.”

North Sea prospects

Since oil and gas was first discovered in the North Sea, 42 billion barrels have been recovered. However whilst short-term prospects are good, with investment at record levels, the UK Continental Shelf faces a number of challenges.

Tax revenues from oil and gas in 2012-13 were £4.7 billion lower than the previous year, a decrease of over 40%. While the UK’s economy is able to absorb this volatility, this equates to more than one third of Scotland’s health budget or two thirds of Scotland’s spending on education.

Oil price volatility

The UK is able to cope with the impact of oil price volatility that would dramatically affect a small country’s budget. The Office for Budget Responsibility’s forecast for North Sea revenues over the next 3 years was cut by almost £4 billion at the Autumn Statement, however instead of needing to cut spending, the Scottish government will see its budget rise by more than £300 million.

The oil and gas industry currently employs 450 000 people in the UK and will continue to do so when Sir Ian Wood’s recommendations are implemented.

Adapted from press release by Katie Woodward

Read the article online at: https://www.oilfieldtechnology.com/exploration/24022014/uk_to_increase_economic_benefits_from_north_sea_oil_and_gas/