Wood sets out £200 billion roadmap for future of offshore oil and gas industry
The British economy could receive a potential £200 billion boost over the next 20 years, through the recovery of an additional 3-4 billion barrels of North Sea oil and gas, according to a report commissioned by the UK Government published today (24th February 2014).
Government using the security of its pooled resources, will be able to fast-track all the recommendations of Sir Ian Wood’s ground-breaking review on maximising recovery from the UK Continental Shelf.
The UK government offers the strongest basis to unlock the investment needed to achieve the objective Sir Ian outlines of maximising economic production. This will involve improving the efficiency with which the industry operates, increasing production of oil and gas by one third, and boosting jobs in an industry that already employs 450,000. Whilst short-term prospects are good, with investment at record levels of £14 billion, the UK Continental Shelf faces unprecedented challenges.
Production has fallen by 40% in the last 3 years, and the efficiency with which oil and gas is produced has fallen to 60%, costing the economy £6 billion.
The UK is reliant for North Sea oil and gas for more than half of total oil and gas used, and will continue to need around 70% of gas in the energy mix out to 2030.
Maximising domestic oil and gas production would increase Britain’s domestic energy security and reduce the UK’s reliance on expensive imports.
The size of the UK, with its large tax and consumer base, will allow Government to realise the additional economic prize set out by Sir Ian Wood.
Energy and Climate Change Secretary Edward Davey announced the changes in Scotland, where he also visited Peterhead with Deputy Prime Minister Nick Clegg, to sign a multi-million pound deal with Shell to develop the next stage of their Carbon Capture and Storage (CCS) project on a gas-fired power station – a world first in low-carbon projects.
Energy and Climate Change Secretary Ed Davey said:
“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.
“I fully back Sir Ian Wood’s recommendations and we will start implementing them immediately.
“The UK Government already supports Scottish energy projects worth hundreds of millions of pounds each year, and our large tax and consumer base will ensure that the potential £200 billion benefit Sir Ian Wood has identified can be realised.
“This will be good for our energy security, good for the economy and good for jobs.
Prime Minister David Cameron said:
“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.”
Sir Ian’s key recommendations include:
A new shared strategy for “maximising economic recovery (of oil and gas) for the UK”, with commitment from the government (HM Treasury and a new Regulator) and the oil and gas industry.
Creation of a new arm’s length regulatory body to oversee and develop this programme of change and growth.
Greater collaboration by industry in areas such as development of regional hubs, sharing of infrastructure and reducing the complexity and delays in current legal and commercial processes.
The fiscal regime introduced by the government will lead to greater investment in the North Sea - the decommissioning relief certainty, introduced in October 2013, alone is worth upwards of £20bn. An independent Scotland would have to commit around £3,800 per head – over ten times more than when costs are spread across the UK – to match this.
The Office for Budget Responsibility cut the revenue forecast for the North Sea by £4 billion at the Autumn Statement. This would have a disproportionate impact on the budget of an independent Scotland. The UK government can afford this support, and take the short term hit to tax receipts, because of the size and diversity of its economy.