Maximising recovery "a vital national goal" says UKOOA

News - August 5, 2005

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The UK will become increasingly reliant on oil and gas to meet its primary energy needs over the next 10 to 15 years, despite efforts to promote energy from renewable sources, said the UK Offshore Operators Association (UKOOA) on the publication of its annual economic report.

Maximising recovery of the nation's indigenous reserves will help to cushion the UK from the full impact of energy price volatility, and bring many other direct benefits.

"The UK's reliance on oil and, in particular, gas as primary sources of energy is increasing," said UKOOA chief executive Malcolm Webb. "The government's projections show that the UK's oil and gas needs will rise from the current 74 per cent of primary energy to 85 per cent in 2020, with demand for gas for power generation growing by around 60 per cent over the same period."

"If we don't produce oil and gas ourselves then we will have to import it. If the UK had to import all its oil and gas, in 2005 alone our import bill would be around £30 billion higher, increasing the current UK trade deficit by almost 75 per cent, and UK tax revenues from oil and gas would be about £10 billion lower because imported oil and gas pays no UK Corporation or Petroleum Revenue tax. It makes sense therefore from the economic, as well as the security of supply, viewpoint to do all we can to maximise the recovery of our own oil and gas reserves. This will require careful nurturing of the right business environment - one which is conducive to investment, not impaired by the cost of inappropriate regulation and not thrown off balance by unexpected fiscal changes."

UKOOA's report, Energising Future Generations, points to remaining UK reserves of up to 28 billion barrels of oil and gas, offering substantial development opportunities in the future - provided the industry remains internationally competitive and can sustain investment at current levels.

The industry spent over £8 billion in 2004, and expects investment to increase this year. Current investment will halve the rate of production decline to around 6-7 per cent per annum over the next five years but challenges remain if the industry is tocontinue to slow the rate of decline over the long term.

"If the UK oil and gas industry can sustain investment at the current rate then we could still be producing 65 per cent of our total oil requirements and a quarter of our gas requirements in 2020," said Mr Webb.

Activity has picked up significantly in the UK offshore over the past couple of years, encouraged by voluntary agreements between Industry and Government which have resulted in strong, well supported initiatives to promote new investment in undeveloped as well as producing acreage.

There was a 40 per cent increase in exploration in 2004, with 63 wells drilled; a further 37 wells have been drilled in the first half of this year. Last year the number of new project approvals doubled to 27.

The recent 23rd Licensing Round drew the highest response in 30 years. Substantial progress has been made through the Fallow initiative: of the 532 blocks identified as dormant since 2002, 442 have either seen activity or have been relinquished.

"The current pick-up in activity should help to address the potential lack of new developments coming on stream for 2007 and 2008 identified in a recent study by the petroleum economist Professor Kemp", said Malcolm Webb. "We believe this apparent shortage of projects is due to the slump in investment that immediately followed the changes to the North Sea tax regime in 2002."

The UK can remain self-sufficient in oil until around 2009/2010. While the country became a net gas importer again in 2004 after a decade of self-sufficiency, UK gas production today still meets well over 90 percent of domestic demand and should still supply 60 percent of demand in 2010.

"Maximising gas supply from UK fields over the next two winters is clearly a key issue" said Malcolm Webb. "UKOOA's gas producing members have taken significant steps to improve the quantity and quality of information provided to the UK's gas market. It is in all our interests - industry, Government, regulators and most importantly UK consumers and taxpayers - that the supply of gas from UK fields is maximised."

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