Friday 11 October 2002

Offshore Oil and Gas Industry Response to DTI Energy Policy Review

The UK Offshore Operators Association (UKOOA), the representative organisation for oil and gas exploration and production companies in the United Kingdom, is publicly releasing its response to the Department of Trade and Industrys (DTI) Energy Policy Review.

The key points in its submission are:

* Diversity of supply, at competitive prices, is fundamental to achieving security of supply. The role of open markets is central to achieving this;

* Government (national and EU) has an important role to play in helping producer countries create the right political, economic, business and legal climate to encourage long term investment in energy supplies;

* Maximising recovery of UKCS reserves and facilitating the entry of other supplies to the UK market require industrys confidence in the nature of the fiscal and regulatory regime; recent, adverse tax changes will make delivery of PILOTs investment and production targets for the UK oil and gas sector even more difficult;

* The risk to the UKs economy of under-investment in the National Transmission System far outweighs the costs of some over-investment;

* Gas has been and should continue to be a significant part of the solution to the problem of greenhouse gas emissions;

* Energy policy needs an appropriate place within Government, connected to the whole of Government.

UKOOA points out that the upstream oil and gas industry has a long record of uninterrupted supply in meeting market requirements in the UK and claims that the sector can continue to meet demand reliably, provided market conditions are conducive.

It also argues that there need be no shortage of oil and gas world-wide, with the right investment climate and sufficient lead times, so as to ensure diverse and secure supplies at competitive prices.

Production from the UK Continental Shelf (UKCS) is about half way through its life, in terms of the amount of oil and gas that is economically recoverable. Approximately 29 billion barrels of oil equivalent have been produced to date. However, the second half will be much more difficult to recover than the first, as the bigger, earlier fields decline and newer finds become ever smaller and technically more demanding.

Government has an important role to play in achieving maximum recovery from the UKCS and, with the EU, in opening the way for new international supplies. The recent report by the UK-Norway Co-operation Work Group is an important contribution to this process. However, the 2002 Budget changes have cast doubts on achieving maximum economic recovery of UKCS reserves and on Governments understanding of the long-term nature of energy investments.

Investment in energy transmission networks is a critical aspect of security of supply and, therefore, energy policy overall. The upstream oil and gas industry has a good record in delivering such investment. However, the regulatory emphasis onshore which has, in recent years, been concentrated on economic efficiency needs to be moved towards securing appropriate new investment in the National Transmission System, with a margin of spare capacity to provide both flexibility and resilience.

UKOOAs full submission to the Energy Policy Review may be obtained online at www.oilandgas.org.uk.

For more information, please call 020 7802 2400.