Bullet Points on North Sea Oil & Gas
Bullet Points on North Sea Oil & Gas
Despite epic UK mismanagement, the Oil & Gas industry remains key to Scottish economic growth.
The following four articles on North Sea Oil & Gas caught my eye. I’ve summarised the important points below:
How not to use your time as an energy superpower, by Ed Conway. I recommend that you only vote for Scottish Westminster candidates who have read his brilliant book Material World.
Discovery and Production: North Sea oil was discovered in the 1960s and 1970s. By the 1980s, the UK became the world’s fifth-largest oil producer and, during the 1990s, the fourth-largest gas producer globally.
Economic Contributions: North Sea oil significantly influenced the UK economy by supplying oil and natural gas, supporting industries like chemical and pharmaceuticals, and feeding refineries in Grangemouth, Teeside and Humberside.
Revenue Impact: North Sea oil revenues were substantial, peaking in the mid-1980s at nearly 3% of GDP, enough to finance major government budgets like transport and housing. Even as of 2024/25, tax revenues from North Sea oil are projected to be considerable (£10 billion).
Infrastructure Development: The discovery of North Sea oil led to the rapid construction of a national gas grid, changing how most homes in the UK were heated.
Tax Contributions: North Sea producers have consistently paid significant taxes, contributing notably to the UK Exchequer.
Economic Stability: The presence of local oil sources provided some economic stability against global oil price fluctuations, allowing the UK to offset high energy costs with domestic production.
Missed Opportunities for Long-Term Savings: Unlike Norway, which used its oil revenues to build a massive sovereign wealth fund, the UK did not save its North Sea oil revenues but used them for immediate spending and did not significantly invest in the country’s long-term capital.
Cultural and Industrial Legacy: The oil sector's impact is often minimized due to its remote location and specialized workforce. There was also no significant effort to harness this boom to create a robust national oil company or ensure that related services and infrastructure would be domestically sourced, unlike strategies seen in countries like Norway.
Decommissioning Focus: The focus has shifted towards decommissioning North Sea oil infrastructure, with significant remaining reserves (approximately 25 billion barrels of untapped oil) still in the ground.
Why the death of North Sea oil is a disaster for Britain, Daily Telegraph: “Having squandered its most valuable asset, the UK has left itself dangerously exposed”.
Historical Production and Decline: The Brent field, once a major source of oil for the UK, has seen its platforms decommissioned. UK oil production peaked at 150 million tonnes in 2000 but has since declined sharply to 38 million tonnes in the last year reported.
Economic and Employment Impact: At its peak, the oil and gas sector contributed significantly to the UK economy, employing 500,000 people and injecting around £400 billion in taxes over five decades. Currently, employment has dropped to 130,000, and tax contributions have significantly decreased.
Financial Burden of Decommissioning: The decommissioning of oil platforms, wells, and other infrastructure in the North Sea could cost up to £60 billion, with much of this potentially reclaimed from the Exchequer via tax breaks for energy companies.
Continued Dependence on Oil and Gas: Despite the decline in domestic production, the UK still relies heavily on oil and gas, which accounts for 75% of its total energy consumption. The decline in North Sea production means increased reliance on energy imports, exposing the UK to global market vulnerabilities.
Comparative Analysis with Norway: Unlike Norway, which created a sovereign wealth fund from its oil revenues now worth £1.5 trillion, the UK did not save its North Sea oil revenues but spent them on immediate government expenses.
Policy and Tax Challenges: The oil and gas industry in the UK faces high taxes and regulatory challenges, including a recent increase in the windfall tax. These factors are discouraging new investments and accelerating the decline in production.
Future Prospects and Energy Security: The decline in North Sea oil and gas production poses significant challenges to the UK's energy security, potentially making the country more dependent on imports and vulnerable to external price shocks.
Biggest North Sea oil find in decades to be drilled for first time, Daily Telegraph: “Sites expected to produce 500m barrels of oil despite net zero crackdown”
Kraken - New Oil Field Developments: EnQuest plans to start drilling at significant new oil fields near the Kraken oil and gas field, which are estimated to produce 500 million barrels of crude oil over the coming decades.
Kraken - Political and Environmental Concerns: The development reignites political debates over North Sea oil, with Labour proposing to block new production due to environmental concerns. Labour also plans an £11 billion windfall tax raid on the industry to fund clean energy initiatives.
Kraken - Global Energy Context: Despite net zero targets, industry leaders like Shell's CEO, Wael Sawan, express concerns about potential global energy shortages unless there's continued investment in oil and gas production.
Kraken - Bressay and Bentley Fields: The Bressay field is one of the largest undeveloped oil fields in the UK, with estimated oil-in-place between 600 million and one billion barrels. Bentley is similarly large, with production potential over 300 million barrels. Together with Kraken, these fields form a significant production cluster.
Kraken - Operational Details: The fields are close enough to be connected to the same production system centered around a floating oil platform already serving the Kraken field. Bressay's development will involve using gas extracted from the field to power operations, reducing emissions by replacing diesel fuels.
Kraken - Economic and Fiscal Impacts: Most of the oil produced is likely to be exported. The primary benefit to the UK from these operations will be through taxes, with current windfall taxes at 75% of profits.
Kraken - Government Stance on Oil and Gas: The UK government supports the oil and gas industry, noting the ongoing need for these resources even as the country aims for net zero by 2050. The approach includes a managed decline in production but maintains significant support for the industry due to its role in the economy and energy security.
Kraken - Energy Transition and Environmental Strategy: EnQuest is committed to supporting the UK's energy transition and aims to reach net zero scope 1 and 2 emissions by 2040. The company plans to use natural gas from the Bressay field to decrease the carbon footprint of its Kraken operations.
Britain has an ace up its sleeve in the battle against inflation, Daily Telegraph: “Ready reserves can cushion the blow – but only if we are prepared to use them”
Recent Price Surge: Brent crude oil prices recently topped $91 a barrel, marking a 25% increase over the last four months and complicating central banks' decision-making regarding interest rate cuts.
Global Demand and OPEC Production Cuts: Global oil demand is expected to increase, especially over the summer months, while OPEC members have cut production by two million barrels per day, amounting to about 2% of global demand.
Geo-political Influences on Oil Prices: The ongoing war in Ukraine and tensions in the Middle East, especially between Israel and Iran, are heightening concerns about fuel supply security and potentially impacting global oil prices.
Political Sensitivity in the US: Rising fuel costs in the US are becoming a significant political issue as the presidential election approaches, influencing public opinion on the current administration's handling of the economy.
Inflation Concerns: Rising oil prices are contributing to higher inflation rates, particularly in the US, where the consumer price index showed an increase from 3.2% to 3.5% year-over-year in March.
Monetary Policy Responses: The increase in inflation has influenced the Federal Reserve's strategy, likely delaying interest rate cuts and impacting global financial markets.
UK's Monetary Policy and Inflation: Similar to the US, the UK's inflation rate has recently decreased, but the Bank of England may delay interest rate reductions in response to global trends and the Fed's actions.
Impact of a Strong Dollar: A stronger US dollar, influenced by higher interest rates, could further increase crude oil prices, exacerbating the cost of living crisis in the UK and other energy-importing countries.
North Sea Oil Developments: A British energy company, EnQuest, plans to start drilling at a significant new oil field in the North Sea, potentially easing some of the UK's energy supply issues. However, this is controversial due to environmental concerns and the political debate over future energy policy.
Long-term Energy Strategy: The article questions the UK's long-term strategy for replacing North Sea oil and gas supplies as many fields are expected to cease production by 2030. It highlights the ongoing need for fossil fuels despite the planned transition to renewables by 2050.