Unpredictable fiscal conditions are denting the confidence of offshore energy-producing companies to invest and revitalise oil and gas exploration activity, reveals the Exploration Insight report published by Offshore Energies UK (OEUK) today.
The waters off the coast of the UK still contain oil and gas reserves equivalent to 15 billion barrels of oil equivalent (boe), enough to fuel the UK for 30 years, but more investment in exploration is needed to slow down the decline in domestic production to safeguard the nation’s energy security. Just four exploration wells have been drilled this year compared to 16 in 2019, the most recent pre-pandemic year comparison.
The report shows how the offshore energy industry is balancing the UK’s continuing demand for energy, while supporting the transition to a low carbon energy economy through its commitment to deliver net zero emissions by 2050. The Insight report assesses oil and gas exploration over the past ten years, explores the potential for future developments and considers how the 33rd offshore licensing round will impact exploration while reflecting on opportunities for the expanding sector to support the UK’s climate goals through the development of critical carbon capture and storage facilities.
Commenting on the report, Mark Wilson, OEUK’s HSE & Operations Director said:
“Our new report shows why ongoing exploration in our waters is critical to ensuring reliable supplies of domestically produced energy which also add value to the UK economy. The UK Continental Shelf is a mature basin, with North Sea oil and gas production peaking in 2000 so careful management of the remaining resources is vital to avoid rapidly increasing reliance on imports.
“Supporting this industry and its exploration activities is essential to the UK delivering a homegrown transition to cleaner energies, retaining the benefits in taxes paid, jobs supported, and our wider economic contribution.
However, the ongoing uncertainty and continuous changes to the fiscal regime will drive investment out of the UK and encourage some companies to leave the basin. In such conditions, companies are unable to plan the future long-term investments we need to support energy security and our net zero commitments.
“Low levels of exploration mean on a ten-year average, we are replacing only 10 per cent of the reserves we need to sustain the production levels that can help to keep the UK energy secure and power its energy transition.
He continued: “We need to ensure that the UK government’s British Energy Security Strategy made clear the need to support the production of North Sea oil and gas, alongside the deployment of offshore wind, solar and hydrogen, continues to be the focus of the new Prime Minister and his government. It was good to see the importance of oil and gas to the transition to a low carbon economy and energy security recognised with the launch of the 33rd licensing round following the completion of the new climate compatibility checkpoint.”
“Our new report shows why ongoing exploration in our waters is critical to ensuring reliable supplies of domestically produced energy which also add value to the UK economy. The UK Continental Shelf is a mature basin, with North Sea oil and gas production peaking in 2000 so careful management of the remaining resources is vital to avoid rapidly increasing reliance on imports.
“Supporting this industry and its exploration activities is essential to the UK delivering a homegrown transition to cleaner energies, retaining the benefits in taxes paid, jobs supported, and our wider economic contribution.
However, the ongoing uncertainty and continuous changes to the fiscal regime will drive investment out of the UK and encourage some companies to leave the basin. In such conditions, companies are unable to plan the future long-term investments we need to support energy security and our net zero commitments.
“Low levels of exploration mean on a ten-year average, we are replacing only 10 per cent of the reserves we need to sustain the production levels that can help to keep the UK energy secure and power its energy transition.
We need to ensure that the UK government’s British Energy Security Strategy made clear the need to support the production of North Sea oil and gas, alongside the deployment of offshore wind, solar and hydrogen, which continues to be the focus of the new Prime Minister and his government. It was good to see the importance of oil and gas to the transition to a low carbon economy and energy security recognised with the launch of the 33rd licensing round following the completion of the new climate compatibility checkpoint.”
The report reveals there are significant prospective North Sea resources potentially recoverable within a 45km radius of offshore hubs, which could provide 8.4bn boe of hydrocarbons, representing roughly eight times the UK’s annual consumption of oil and gas. The Central North Sea holds the greatest opportunity for extending the lifetime of existing infrastructure with around 1.4bn boe in prospective resources within range of being tied back to offshore installations.
Mark Wilson adds:
“Returns from developing reserves can be recycled into new energy projects like low carbon energy hubs, repurposing offshore infrastructures like wells for Carbon Capture and Storage and using exploration skills to achieve this. For example, we’ve already seen 26 licence applications in the UK’s inaugural CCS licensing round. Extending the longevity of the North Sea basin will not only underpin energy security and strengthen the supply chain but also ensure our highly-skilled workforce can help the industry transition to a diverse low-carbon energy system in the future.”
Key findings:
- The current rate of exploration activity will see reserves decline at a rate faster than UK energy requirements, increasing the reliance on imports.
- OEUK and Westwood consultants estimate there are over 6.1bn barrels of oil equivalent (boe) remaining to be discovered within 30km of existing infrastructure, with a further 7.5bn boe located beyond that distance.
- Unlike the huge North Sea fields of the 1970s and 80s, today’s undiscovered resources exist in smaller accumulations, which will need to be tied back to existing offshore facilities. Tiebacks tend to be lower carbon intensive as they don’t require the installation of offshore platforms and this will help the industry meet the stringent requirements of the climate compatibility checkpoint in the 33rd licensing round and beyond.
- Over the past 10 years, the UKCS has produced roughly 6bn boe, whilst discovering 600mn boe. This is a 10 per cent reserves replacement rate which is not enough to maintain stable output.
- The next ten years will see 1,600 oil and gas wells being decommissioned and these closures could see UK oil and gas production plummet by 75 per cent unless new resources are discovered for appraisal into reserves.
- Exploration expertise and personnel will be able to transfer and deploy their skills within the CCS industry.
The report is available here
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