Facing shortfall, UK plans to bolster oil, gas sector


Facing shortfall, UK plans to bolster oil, gas sector


LONDON -- The UK government has outlined plans to bolster the country's vital oil and gas sector, as official statistics showed that net energy imports rose last year to their highest levels since 1976, due to a sharp fall in domestic production.

Output, which fell last year because of shutdowns at several key North Sea oil and gas fields, has been on a downward slope for over a decade due to natural decline rates at mature fields and a changing tax regime. Concerns over the high costs of decommissioning old facilities have held back many potential investors.

The UK's oil and gas industry, which employs over 400,000 people, is vital for the country's energy security and the economy. Last year, it contributed $17.4 billion to flagging government coffers--more than any other sector.

The government said that it would work with the industry to provide tax certainty, supply-chain support and skills development, to help feed a forecast revival in output.

"It is a strategy that all sides are committed to, so that future decades of investment and growth can be maintained in the North Sea," said Business Secretary Vince Cable.

A raft of recent tax breaks and other incentives have helped restore confidence, enticing smaller companies into the region to redevelop some of the older fields and adjoining newer assets. At the same time, a sustained high oil price and advances in technology, to enable resource development from more complex and challenging fields, have helped spur investment.

Companies are already planning investments totaling around GBP100 billion on the UK continental shelf, industry body Oil & Gas UK said last month. Of that, a record GBP14 billion is expected this year.

All this is expected to help reverse the production decline that has seen output fall to a low of 1.45 million-1.5 million barrels of oil equivalent a day this year, well down from a daily peak of 4 million barrels in 1999-2000, according to forecasts by Oil & Gas UK Production is forecast to start rising again next year, and is expected to hit 2 million barrels of oil equivalent a day by 2017, Oil & Gas UK said.

One contributor to this is the giant Clair field, west of the Shetland Islands. BP and partners Royal Dutch Shell, ConocoPhillips and Chevron said they are investing more $500 million on an appraisal drilling program to evaluate further development there. BP and its partners have already committed around $10 billion to Clair.

The West of Shetland region has the greatest potential to expand UK offshore oil and gas production. Over 1 Bboe reserves are in development in the area, which will come into production within five years, Oil & Gas UK has said.

U.K. oil production was down 14.3% and natural gas output fell 14.1% in 2012, the Department of Energy and Climate Change said in its quarterly statistical report. The sharp drop was largely a result of shutdowns at the Elgin gas field, which suffered a leak, and maintenance work at the large Buzzard oil field, the report said.

Dow Jones Newswires

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