The oil is out there – help us get it

By PAUL RIDDELL

AN ADDITIONAL 15 billion bar­rels of oil and gas could be extracted from the North Sea and the Atlantic frontier west of Shetland than currently planned, according to the offshore industry’s umbrella body.

But extracting these resources, worth an estimated £750 billion to the British economy, will require a more favourable tax regime and, in the case of west of Shetland in parti­cular, require significant advances in technology, the annual economic update out this week from Oil & Gas UK states. An estimated 25 per cent of the additional barrels lie west of Shetland.

The report also predicts a signi­ficant upturn in decommissioning activity, which will reach a peak in 2019. Lerwick Port Authority is currently investing in harbour improvements to try to capture a share of this market, and is already providing berthing for barges in­volved in decommissioning the North West Hutton platform.

Oil & Gas chief executive Mal­colm Webb said that under the current fiscal rules investments had been made to recover around 10 billion barrels over the next 20 or 30 years.

Mr Webb said: “Barrels left in the ground do not pay taxes, do not sustain jobs, do not help secure the nation’s energy supply and provide no support to the country’s balance of payments.

“While we may have produced nearly 38 billion barrels of oil and gas over the last 40 years, the UK still has substantial oil and gas poten­tial. It is estimated that some­where between 16 and 25 billion barrels of oil and gas remain to be recovered.

“Plans currently in place should reach about 10 billion of those barrels so the challenge in the hands of the government and industry is how to achieve the remaining 15 billion barrels.

“While realising this goal will require massive further investment from the industry, at $100 per barrel it is worth $1.5 trillion to the British economy and this is a prize which the country should not contemplate losing.

“There need to be targeted incentives for companies wishing or willing to invest the very, very considerable sums that are going to be needed to get up to that 25 billion target but, my word, that is a target worth going for.”

The report also highlights the fact that although oil and gas prices have trebled in the last seven years, the cost of extracting it from the North Sea and Atlantic has increased fivefold.

The Oil & Gas report triggered a political row between the Scottish and UK governments this week, with the Nationalists claiming that the high price of oil would result in a £6 billion tax bonanza for the treasury, which Scotland should benefit from.
First Minister Alex Salmond suggested that 10 per cent of it be put into a fund for Scotland’s future benefit. However, treasury officials pointed out that there was no wind­fall due to a decline in economic acti­­v­ity generally which would result in falling tax revenues elsewhere.

On decommissioning, the report states: “Over the next two decades, the industry will begin to decommis­sion many of the installations that have been producing oil and gas during the past 30-40 years. It is a complex process, representing a considerable challenge on many fronts and encompassing technical, economic, environmental and health and safety issues.

“There are approximately 470 installations to be decommissioned, including very large platforms with concrete sub-structures, small, large and very large steel platforms and sub-sea and floating installations, the vast majority of which will have to be totally removed to the shore for dismantling and disposal. Some 10,000-14,000km of pipelines, 15 onshore terminals and around 5,000 wells are also part of the infra­structure planned to be gradually phased out.

“The decommissioning of one of the first big platforms, North West Hutton, is already under way and others will follow with time. North West Hutton provides a good example of the likely timescales involved which are longer and more complex than the regulatory and fiscal regime had foreseen. Pro­duction ceased in 2002, with well abandonment and the making safe of the topside plant and equipment taking another two years.

“Following extensive consulta­tion, decommissioning consent was given in the first half of 2006 which included allowing the very bottom of the jacket structure to remain in place on the seabed. Contracts were awarded during 2006 and current plans are for removal of the topsides in the summer of 2008, with jacket and pipeline removal in the summers of 2009 and 2010 respectively.”