UK oil and gas is a vital part of our economy and one of our great industrial success stories over the past 50 years.
The industry contributed a staggering £3bn last year and supports 375,000 jobs across the UK. It’s the largest industrial investor we have and I am determined to ensure it continues to thrive.
Critically it supports our energy security, with almost 42 billion barrels of oil and gas recovered from the UK Continental Shelf so far.
2014 was a year of record capital investment with some £14.8 billion invested across the UK Continental Shelf. But this impressive headline figure masked a series of underlying challenges that I heard about first-hand in my recent visit to Aberdeen.
Increasing costs, low oil prices, falling exploration, job losses and an ageing infrastructure are all putting pressure on the future viability of the industry.
As a Government we have been quick to recognise these issues and to act with the rapid implementation of the Wood Review and the Oil and Gas Fiscal Review. I’m very pleased with the progress that has been made in recent months.
We have established the Oil and Gas Authority (OGA) under the leadership of Andy Samuel who has moved with great pace to build his team and focus on delivery.
The OGA became an Executive Agency of DECC as planned on 1 April this year and is on track to become independent Government Company in the summer of 2016.
The Energy Bill, announced in the Queen’s Speech, will also provide new regulatory powers for the OGA including the ability to participate in meetings with operators, resolve disputes and issue sanctions such as improvement notices and fines of up to £1m.
Already the new regulator is heavily involved in facilitating various commercial discussions between operators to help protect critical North Sea infrastructure
It is also pressing ahead with a £20 million Government-funded seismic project to acquire new high-quality data which will be made freely available to industry to help revitalise exploration, a much needed intervention.
But the OGA cannot achieve these outcomes in isolation. Now is the time for everyone to demonstrate leadership and work together to make sure our oil and gas sector remains globally competitive.
As part of our long-term plan to back our oil and gas sector and build a more resilient economy, the Chancellor announced a package of fiscal reforms at the last Autumn Statement and Budget to help achieve this.
These reforms demonstrate that we are open for business and will help to ensure that the North Sea continues to attract investment and remain internationally competitive.
We expect that, over the next five years, this package will deliver over £4 billion of additional investment and an increase in production of around 15% by 2020.
However, fiscal reforms are only part of the solution. The industry must take action to reduce costs and improve efficiency, learning from other sectors where possible.
At the same time, the need for a cultural and behavioural shift in the way that North Sea companies work with each other is universally recognised.
Encouraging greater collaboration is a key priority for the OGA and is essential to increasing efficiency and productivity.
Looking to the long term, we need to turn challenges into opportunities.
The industry is now in its 50th year and decommissioning is a reality. However with it, is an opportunity to develop new operating models and bring in skills and expertise.
We must seize this opportunity and use our innovation and technology to develop a highly valuable and saleable expertise which can anchor this industry and secure vital jobs in the north east of Scotland and across the UK.
I have no doubt that significant hydrocarbon resources and economic value remain to be delivered from the UKCS and oil and gas will continue to be a key part of the UK’s energy mix as we transition towards a low carbon future.
But the scale of the challenge ahead is significant. There is an urgent need for industry to address rising operating costs and reverse recent declines in operating efficiency.
The consequences of failing to act are clear. That’s why I’m determined to do all I can to ensure the industry grows and remains competitive for the future.
If we are to fully maximise recovery in the North Sea it needs to be done in a sustainable way. Carbon capture and storage (CCS) technology is key to this success, helping to secure oil and gas as future energy sources in the UK.
The importance of CCS is thanks to its potential to tackle climate change in an entirely different way – by trapping up to 90% of the carbon dioxide (CO2) emitted by fossil fuels.
Our first job is to bring CCS to commercial competitiveness, which is why over the last 18 months we’ve awarded multi-million pound contracts to two CCS projects in the UK – including one at Peterhead. If built, Peterhead will be the world’s first CCS project on a gas power station, and will have the potential to capture 1m tonnes of CO2 per year and could provide clean energy to over 500,000 homes. The captured CO2 would be safely stored at the offshore Goldeneye site, a depleted gas reservoir 2.5km underneath the seabed.
The Peterhead would also bring millions of pounds of new investment to the North Sea, boosting supply chains and supporting thousands of new skilled jobs in the North. It would also help to lay the foundations for a solid future for home grown fossil fuel resources – without risking the planet.
CCS is a complex technology, but if we can get it right it has the potential to unlock a prosperous, low carbon future for oil and gas.
The final investment decisions for Peterhead and a separate CCS project in North Yorkshire, White Rose, are expected to be taken later this year, with Government taking decisions shortly afterwards.
Andrea Leadsom is the Minister of State for Energy and Climate Change.
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