Published by the DTI Oil & Gas Directorate for the reservoir engineering and IOR community in the UK.
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Britain's Oil and Gas: What We Stand To Lose

Anton Ziolkowski, Professor of Petroleum Geoscience at the University of Edinburgh (Anton.Ziolkowski@glg.ed.ac.uk) continues his questioning of Government policy regarding the development of seismic tools which could lead to the discovery of significantly more oil reserves on the UKCS.  He believes that the Government has a vested financial interest in postponing the day when Britain will become dependent on imported hydrocarbons and should be more proactive in promoting technological advances. This follows on from an earlier article (http://ior.rml.co.uk/issue1/talkingP/tp-1.htm) and the DTI reply (http://ior.rml.co.uk/issue2/intro.htm).

I thank Tissa Jayasekera very much for responding in the last issue of the IOR eNewsletter to my article on the problem of Britain's sources of primary energy.  I think my request for more Government funding for research may have obscured my main point about the need for the Government to do more to postpone the day when we become totally dependent on imported oil and gas.

According to the Government, "The Government's objective is to maximise the benefits to the nation from the exploitation of its hydrocarbon resources" (Development of UK Oil and Gas Resources, 2001, The Stationery Office, p 23).  In my opinion the Government can do more to meet this objective.  Vast areas of the nation's potential resources have not even been looked at, because an economic tool for looking at them has not yet been developed.  Thus the whole of the basalt-covered potentially prospective sedimentary succession across the area west of the Shetlands and Hebrides remains largely unexplored.  Does the Government have an obligation to encourage the development of a tool to explore this area economically?  Or is its current policy of relying on the oil industry to provide the answers to Britain's hydrocarbon supply problems the best one?

Map showing UK Continental Shelf (UKCS)    (click image for larger view)
(From Development of UK Oil and Gas Resources, DTI, 2001)

What is going to happen if the Government continues to follow current policy?  The answer is contained in the Government's own publication "Security of Energy Supply".  According to evidence supplied to the Government by UKOOA (Appendix 33, Security of Energy Supply, Vol. II, HC 364-II, The Stationery Office), current production of oil and gas on the UKCS is almost 5 million boepd (barrels of oil equivalent per day).  By 2012, only ten years from now, production will be only 2.3 million boepd.  Thus Britain is going to be worse off by about 2.7 million boepd in ten years' time.  At today’s price of $28 per barrel, this is $75 million per day, or roughly $28 billion per year.  Any oil and gas we may need to supplement domestic production will be imported.  The Government has been reassured by UKOOA that imports will be available.

(click image for larger view)

The $28 billion a year loss is real money and represents real suffering in this country, although this is not really covered in the Government’s report HC 364-II.  First, there will be a loss of perhaps 200,000 jobs in the oil industry alone.  Next, there will be a loss of revenue to the Exchequer, which must be made up by increased taxation on us.  Next, since energy from renewable sources of energy is unlikely to be able to make more than a small contribution to Britain's energy needs ten years from now, we will have to import what we need - and pay for the imports with exports.  By this time the price of oil may not be as low as $28 per barrel.  If we are unable to export enough to pay for the imports, we will have to import less, which is likely to be arranged through higher prices.  This is likely to have knock-on effects on the prices of all goods and to increase unemployment further.  Economists can speculate on the possible consequences.  What is clear is that we will all be substantially worse off than we are today.

I suggest that the Government can do more than it is doing to reduce this expected suffering.  The minimum we stand to lose by current Government policy is $28 billion per year.  It could be much worse than this, depending on energy prices and our ability to create exports.  I suggest that the Government can make adjustments that are tiny compared with this figure in order to reduce the expected suffering.  One suggestion I have already made is to ring-fence £10 million a year to develop tools (very likely to be geophysical) that will allow us to look beneath the basalt.  Another possibility, perhaps more preferable to the Government and UKOOA, is to give incentives to UKOOA members to develop these tools themselves.  Currently UKOOA members have very little incentive to look at this area. 

Exploration beneath the basalt is not the only thing that can be done to find more hydrocarbons: it is merely the most obvious thing to do when you look at the map of the UKCS.  Another way of increasing hydrocarbon reserves, and therefore production, is to find more subtle stratigraphic traps, such as the recently discovered Buzzard field, the largest field to be found on the UKCS in the past decade. 

A number of geologists believe that there are many more such fields to be found on the UKCS, particularly in areas on the margin of existing well explored fairways like the outer Moray Firth where Buzzard was found.   The existing seismic tools are good at defining geological structure and hence at finding structural traps for hydrocarbons.  But they are poor at defining stratigraphy and hence at finding fields resident in stratigraphic traps.  Let's design them to look for stratigraphy.  The Government does recognize that there are likely to be more subtle stratigraphic fields on the UKCS like Buzzard.  But does it recognize that current seismic tools are not very good at defining stratigraphy?  Every seismic interpreter has trouble tieing wells to seismic data and therefore in precisely inferring the stratigraphy from seismic data.  This is the fault of the current seismic method.    But it can be improved.   The cost of improvement is very small compared with the $28 billion a year we stand to lose if we don't do it. 

Should the Government let market forces decide these issues?  Or should it be more active in trying to maximise the benefits to the nation from the exploitation of its hydrocarbon resources?

Prof. Anton Ziolkowski (second left) talks about the INSPIRE project: Seismic data acquisition and processing for a shared-earth model at the recent DTI IOR research dissemination seminar (click image for larger view)

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