Gas Production from the UK Continental Shelf: An Assessment of Resources, Economics and Regulatory Reform [GGP]
The outlook for oil and gas production on the UKCS has improved dramatically since 2015 due to the industry’s successful commissioning of large-scale projects, its efforts to reduce costs and to improve its operational performance, the bold reduction in tax rates in 2016 and the adoption in law of a new statutory objective to achieve the maximum economic recovery of UKCS resources (MER UK). The new regulator, the Oil and Gas Authority (OGA), has so far acted mainly as a behavioural regulator, without using its formal regulatory powers, but it has signalled its willingness to intervene more actively to overcome the obstacles to MER UK. The hard economics of UKCS investment (costs, prices and taxes) are likely to be the main determinants of future investment and resource recovery since the UKCS will remain a relatively high-cost producing province. Maintaining a competitive, stable tax regime and rigorous industry cost control will be essential for MER UK. The OGA may be able to influence the course of future oil and gas production through prudent use of its powers, especially in less mature regions such as West of Shetland, but preventing ‘premature’ decommissioning of gas infrastructure in mature areas and the ‘stranding’ of known resources will be a constant challenge. Promoting a sustained recovery in exploration activity from recent lamentable levels is perhaps the most urgent task facing the OGA.
An estimated 10-20 billion boe of oil and gas remains to be produced from the UKCS. The improved industry outlook has led to upward revisions in the last four years of estimates of both future production and ultimately recoverable resources (URR). However, future production and URR remain highly sensitive to the course of oil prices, the development of unsanctioned, marginal discoveries and future exploration in the 2020s. The prospects for UKCS gas production are intimately linked to those of oil since two-thirds of UKCS gas production is now associated gas. In recent years, UKCS gas production (41 bcm in 2018) has exceeded short-term projections by the OGA. Following the start-up of the Culzean field in 2019 and the recent discovery of Glendronach and Glengorm, output is expected to remain at about 40 bcm per year until 2021 before resuming its long-term decline. Gross production is expected to fall to about 33 bcm in 2024. The current range of published estimates of output in 2035 (8-20 bcm) reflects the geological and economic uncertainties over future exploration and investment rather than conventional cost-based competition with imported gas. MER UK is compatible with the UK’s ‘net zero emissions’ target in 2050 providing the UKCS does not in future incur policy-related emissions costs not faced by imported supplies.
DOWNLOAD: Gas Production from the UK Continental Shelf: An Assessment of Resources, Economics and Regulatory Reform, from the Oxford Institute for Energy Studies (OIES)
The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.