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Rapid increase in North Sea oil and gas investment vital amid Ukraine war fallout say industry leaders

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Picture: Getty Images

Picture: Getty Images

NORTH Sea industry leaders have hammered home their belief that the UK needs to boost domestic oil and gas production to reinforce the security of supplies amid the fallout from the Russian assault on Ukraine.

As countries in Europe look to reduce their reliance on Russian gas, the extent of the UK’s dependence on imports is writ large in a report which notes that Norway became the country’s largest supplier last year.

The UK has been a net importer of gas since 2004 but this was the first time that supplies from any one country exceeded domestic production.

The finding in the report by Offshore Energies UK (OEUK) suggests that any production disruption in Norway could have worrying implications for the UK. It could leave the country struggling to source supplies on international markets as competition for resources intensifies.

“Energy security is now a matter of national security,” declared OEUK chief executive Deirdre Michie. “Our policymakers need to plan not just for the coming elections but the coming decades.”

HeraldScotland: Offshore Energies UK chief executive Deirdre Michie, left, visits ProServ's engineering facility in Aberdeen Picture: OEUK

HeraldScotland: Offshore Energies UK chief executive Deirdre Michie, left, visits ProServ’s engineering facility in Aberdeen Picture: OEUK

Offshore Energies UK chief executive Deirdre Michie, left, visits ProServ’s engineering facility in Aberdeen Picture: OEUK

The report warns the UK will have to import almost all its gas and most of its oil from overseas suppliers within a few years unless billions of pounds are invested in new North Sea exploration and production facilities. The UK is likely to remain reliant on oil and gas to meet the bulk of its energy needs for years until the required low carbon generating capacity is developed.

“Production of oil and gas will fall by up to 15 per cent a year unless there is rapid investment in new infrastructure,” says the report. “This decline is much faster than the predicted reduction in UK energy demand so, if there is no such investment then, by 2030, we will be reliant on other countries for around 80% of our gas and 70% of our oil.”

READ MORE: North Sea gas field start up boosts UK supplies amid war in Ukraine

Ross Dornan, market intelligence manager at OEUK, noted the UK can import from a range of sources. However, he cautioned: “In the context of countries moving away from Russian supplies, which are 40% of the continent’s gas sources, those international sources are going to be more competitive than they have ever been.”

Mr Dornan also noted that imports may entail higher emissions than domestic production.

OEUK estimates that investment in new oil and gas facilities fell from about £16 billion in 2014 to £5.5bn in 2019. The industry entered a deep downturn after growth in production ran ahead of global demand. Investment fell to £3.6bn in 2020 and £3.4bn in 2021 amid the pandemic. It is predicted to total around £4bn this year.

“The causes are varied but the UK’s complex regulatory environment, plus the political disagreements around issues like climate change and windfall taxes are all factors deterring investment,” said OEUK.

Labour called for a windfall tax to be imposed on firms operating in the North Sea after the surge in oil and gas prices amid the recovery from the pandemic helped some to achieve bumper profits. The rise in prices has left millions of householders facing huge increases in their energy bills.

READ MORE: Calls for North Sea windfall tax intensify as BP boss gets £4.5m pay package

Mr Dornan said firms could approve a range of North Sea development projects this year if they have confidence that the fiscal and regulatory regimes will provide the required support.

While exploration has fallen to record lows firms are eyeing prospects in the area, including some that could entail big development projects.

HeraldScotland: Image: OEUK

HeraldScotland: Image: OEUK

Image: OEUK

OEUK changed its name from Oil and Gas UK last month following moves by members to expand into sectors such as offshore wind. The organisation claims expertise developed in the oil and gas industry could speed the development of a lower carbon energy system. Oil and Gas UK won Government support for a £16bn North Sea Transition Deal in March last year.

Ms Michie said: “Our industry has started work on building the low-carbon energy infrastructure for the UK’s future. This includes technologies as diverse as floating wind turbines, facilities for the mass production of hydrogen from gas, and systems for capturing waste CO2 and then burying it deep under the seabed.”

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