UK North Sea spend to top £20bn: Study

Spend on projects in the UK North Sea is expected to top £20 billion over the next five years, a flagship study has revealed.

And according to Oil and Gas UK’s (OGUK) annual Economic Report, that investment is forecast to unlock around 2.7bn barrels of oil equivalent (boe) from the UK continental shelf (UKCS).

That’s despite increasing calls for Westminster to reign back North Sea oil and gas production in order to tackle climate change.

OGUK’s report has been published in the midst of an ongoing debate about the future of the industry that largely revolves around the proposed Cambo field, west of Shetland.

Politicians and environmental groups are demanding the UK Government block Siccar Point Energy and Shell’s North Sea development.

But OGUK says its report, which found UK gas imports hit a record high in winter 2021, “shows the reality” of cutting off domestic production.

According to the study, between January and March, the UK had to rely on sources overseas for 56% of the gas that was needed to heat homes and run power stations.

The trade body put the deficit down to a rise in demand as well as a drop in production, partly due to Covid-19 and partly to longterm declines.

The report also found that, overall, the UK still gets 73% of its total energy from oil and gas – UKCS production accounts for around 70% of that.

Moreover, up to 2026, the industry is expected to contribute around £1.7bn to the UK Government’s coffers, building on the £360bn it has provided over the last 50 years.

Deirdre Michie, the trade body’s chief executive, said: “Oil and gas provided nearly three-quarters of the UK’s total energy last year, and we will continue to rely on them to heat our homes, keep our lights on and create many of our everyday essentials from medicines to mobile phones to road surfaces. About 85% of UK homes are still heated by gas but imported gas hit a record high last year.”

Reflecting on the year to date, OGUK confirmed the oil price has averaged £48.52 a barrel.

Oil and gas production on the UKCS in Q1 2021 was one million boe per day, down around 11% on the corresponding period in 2020.

A total of 39 wells have been drilled so far this year, the majority of which have been development, with three exploration and two appraisal.

As well as accounting for a significant proportion of current demand, oil and gas is also expected to meet about half of the UK’s energy’s use up to 2050, OGUK said.

In order to meet these requirements, the report stressed that investment in the UKCS will be key.

Despite the challenges brought about by Covid and the sector downturn, £3.7bn was spent in the UK North Sea in 2020.

Over the next five years, the oil and gas industry is predicted to invest £21bn into exploring and producing UK oil and gas – a quarter of that will be on greenfield projects.

About £6.6bn has already been fully committed by companies, with £14.5bn of spend yet to be sanctioned.

But if that’s curtailed, domestic production could only meet a third of the UK’s future energy needs, leaving the nation more reliant on imports.

The report said: “In a nofurther-investment case, total capital investment could fall to less than £1bn per year by the middle of the decade as the UK increased its reliance on imported fossil fuels.”

OGUK also underlined the importance of ongoing investment in maintaining a skilled energy workforce, capable of delivering the needs of the transition.

As it stands, the oil and gas sector is forecast to support almost 200,000 UK jobs in 2021, after shedding more than 30,000 in the last year.

Of those 200,000 positions, 26,900 are direct, 91,500 are indirect and 77,500 are induced.

Francesca Bell, OGUK’s senior investor relations advisor, said: “That 200,000 came from a recent report carried out by Robert Gordon University and it’s likely that we’re going to need that same number in 2030.

“The important point to stress is that there will be a continued need for those roles moving forward and it’s important that, through the managed transition, we continue to have the people and skills on the UKCS to embrace the low carbon journey and get net-zero technologies off the ground. The workforce will be pivotal to unlocking that.”

Industry and Westminster are pinning much of their hopes for a just transition on the landmark North Sea Transition Deal, approved earlier this year.

It aims to balance ongoing efforts to maintain security of energy supply with the need to transition to a low carbon future.

The agreement, the first of its kind by a G7 country, is expected to deliver up to £16bn of additional investment in the coming years, safeguarding livelihoods.

PRODUCTION: OGUK’s report has been published in the midst of an ongoing debate.