Reply to Britain’s Oil and Gas: What We Stand To Lose

Here Tissa Jayasekera (tissa.jayasekera@dti.gsi.gov.uk) responds to the points made by Anton Ziolkowski of  the University of Edinburgh in his article in the last issue entitled "Britain’s Oil and Gas: What We Stand To Lose".

In his article Anton argues the case for the Government to do more to postpone the day when the UK becomes totally dependent on imported oil and gas, particularly by channelling significant funds to develop seismic tools. In preparing this response I consulted my colleague Mike Earp (North Sea Taxation and Financial Statistics branch), who provided a lot of the input here. He points out that "Security of Energy Supply", cited in Anton's article, is not a Government publication, but a report of the Trade and Industry Committee of the House of Commons (http://www.parliament.the-stationery-office.co.uk/pa/cm200102/cmselect/cmtrdind/364/36402.htm).  The Government has responded to that report (http://www.parliament.the-stationery-office.co.uk/pa/cm200102/cmselect/cmtrdind/884/88404.htm) on 23 May 2002. The dialogue on this particular issue goes as follows:

Security of Energy Supply Report:

 “We are pleased that PILOT appears to be contributing to the exploitation of the UK's gas and oil reserves. However, we are concerned that there may still be gaps in the approach [as shown by the difficulty in developing better seismic imaging and techniques]”

Government Response:

"The Government recognises the importance of developing seismic imaging equipment and techniques. SMEs in particular are well placed to develop specialised software modules to be incorporated into the large software systems used by the oil companies, and financial support is being provided for this. The Industry Technology Facilitator, a PILOT initiative, recently announced the launch of a £4 million programme of projects, mostly in UK universities, to provide the next generation of seismic imaging software for the subsurface. In addition, the DTI and the Research Councils, NERC and EPSRC, are supporting projects in universities and companies aimed at developing improved seismic imaging techniques and software, and further opportunities for LINK projects are being pursued"

Thus it seems that the Government position on this has been made public as far back as May 2002.

Approximately £5 million a year of government funds go towards upstream oil and gas R&D through the DTI and the Research Councils through their respective programmes. This is more than matched by the contribution from the industry, taking the total spent per year to around £10 million. The public sector funding bodies are supported by high-powered Advisory Groups consisting of senior personnel from industry and academia to advise on the awarding of these funds. Likewise the companies get advice from their senior people in the Asset Teams and Research Centres. So if there is a pressing need to channel the R&D funds to a particular technology we have the administrative structure to ensure that this is done. The overall funding level (mentioned above) going into UKCS oil and gas research seems adequate in the present climate.

Anton uses a price of $28 per barrel to calculate the value to the UK economy of its oil and gas production. In so doing he seems to assume that oil and gas can be extracted without cost – which is very far from the case, given the harsh environment of the North Sea and especially West of Shetland – and that oil prices will remain that high, which is not the basis on which companies invest. As total UKCS production declines, and with it activity levels (though operating costs are likely to fall more slowly), there will inevitably be a decline in employment in the industry. But the economy is dynamic and employment will be created in other sectors through a gradual process of adjustment. Similarly, the need for imports of primary energy will be accommodated through natural market mechanisms, such as a lower exchange rate.

We are very grateful to Anton for providing the first subject to be taken under "Talking Point", on which we have had a lively dialogue. Hopefully this response should wrap it up and we can now go on to another topic.

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