Oil & Gas UK: Maximize Indigenous Resources, Exploit the Supply Chain

With a view towards producing unconventional gas in the future in the UK, Malclom Webb, CEO, Oil and Gas UK, provided some perspective by highlighting the country's legacy of offshore hydrocarbons production (and its incredibly supply chain) in his speech at Unconventional Gas Aberdeen 2014.

To depict the history of the UK continental shelf (CS), he presented a photograph of a roller coaster, explaining that there had been ups and downs, especially considering zig zags regarding privatization and nationalization as well as tax raids.

“Overall, it's been a hugely impressive result,” commented Mr. Webb, who cited the over 40 billion barrels of oil and gas equivalent produced, over GBP 300 billion of capital investment put in, and over GBP 315 billion in production taxes.

According to him, on thing that had been overlooked was the growth of the industry supply chain, which he characterized as a huge achievement. “It really is an international leader - a jewel in the crown - and yet we've largely sort of overlooked it. Indeed, it was only in 2013 that the Government first got around to creating a cohesive industrial strategy by looking at the whole of the industry, and the supply chain and the contribution that it makes, both to domestic and export markets.”

He said the supply chain contributed about GBP 14 billion of goods and services, proving employment for 450,000 across the UK.

In the context of the “energy triangle” - security of supply, affordability and emissions reductions - he said there had been too much attention to the reduction of emissions, and not enough to the other aspects. “In my view, it should be more or less an equilateral triangle; it's been a very sort of acute one over the past decade,” he explained.

Mr. Webb pointed at the misconception that natural gas in the UK was mostly used to generate electricity; in fact, it only made up about one third of consumption; another third went to heat; and the final third went to transport, where oil was the dominant fuel.

This led to another frustration, he said. “It does seem to me, as it does to the Department of Energy, that we are likely to stay a petroleum based economy for some time yet. The old canard is true: we didn't come out of the Stone Age because we ran out of stones, but because a superior technology took over, and I don't think we're about to come out of the Petroleum Age anytime soon either, and when we do, I think the transition will possibly be a gradual one in any event.”

Seventy-three percent of the UK's primary energy supplies, he cited, came from oil and gas; according to the Department of Energy and Climate Change, that would only go down to 70% by 2030.

“This situation isn't going to change anytime soon and makes it hugely important that we maximize our indigenous resources as far as oil and gas are concerned,” he said.

Offshore oil and gas, explained Mr. Webb, were probably the nation's best kept secret

“Seventy percent of the British population think that we import all or most of our oil and gas. And if they think that about the production side, then of course the supply chain is entirely invisible to them as well, and I think there are huge dangers in that – the dangers of political irrelevance, which can result in some policy mistakes,” he opined.

Mr. Webb mentioned some of the current challenges faced by the industry in the UK: cost, for one, which was depicted in a graph.

He explained, “What it shows, is last year the number of fields offshore that had an operating cost of 30 pounds/barrel or more, doubled – a shift and a significant productivity challenge in the UK CS, and I suspect that the same could be true for the onshore as well.

“Cost is something that we have to be very very careful about,” he added, saying that it was a myth, that the UK onshore would compete with the US in terms of costs and margins.

Mr. Webb showed a graph comparing the price of oil to the number of exploration wells being drilled in the UK offshore. He said, “And you can see, the two have come apart.” The number of wells drilled in 2010, he said, had halved by 2011 and hadn't really recovered, while the price of oil had become significantly higher.

Last year, only 15 exploration wells were drilled in the UK offshore, primarily due to lack of access to rigs, he said, not to mention access to capital.

Safety, he said, was absolutely paramount, and the industry had a pretty good record, even though some lives had been lost. According to him, the industry was taking a wholly proactive response, making sure that neither deaths nor hydrocarbon leaks happened. “On this hinges our license to operate,” he offered.

As for what the future held for the UK continental shelf, he said it held about 24 billion barrels of oil equivalent (or more) yet to be produced. This would be more difficult to produce and required some radical change, a process which he said was underway, but much much greater collaboration was necessary within the industry to deal with things like infrastructure problems or communicating with the Government.

Things like a fiscal review were important, said Mr. Webb, as was the forthcoming Scottish Independence Referendum taking place on 18 September, something which his organization was not taking a position on.

Among his conclusions, he said that the lack of public and political knowledge was a huge danger: “What we've got to do is make sure the public knowledge is where it needs to be,” he said. “I think a strong, well resourced regulator is essential.”

Mr. Webb raised a final question to the delegates in Aberdeen: “Could we stop using the term 'unconventional gas' – there's nothing unconventional about this gas, it's natural gas. There's not very much unconventional about the way we're going and searching for it now.”

Drew Leifheit is Natural Gas Europe's New Media Specialist.