Tuesday 11 November 2003

Investment critical to future UK Security of Gas Supply, Claims UK Offshore Operators’ Association Paper

Having enjoyed unprecedented security of oil and gas supply for the last 20 years, Britains switch to dependency on foreign gas imports as North Sea reserves decline should give no cause for alarm, claims the UK Offshore Operators Association (UKOOA) in a paper published today (11 November) on UK Security of Gas Supply.

However, the Government needs to take steps now to foster long-term commercial and political relationships with exporting countries and ensure that appropriate investment is made both internationally and at home to secure the supplies to meet future UK demand for gas.

UKOOA, which represents oil and gas producers in the UK, argues that there are sufficient gas supplies within economic transport distance to meet future UK demand, but that the security and reliability of these supplies will depend on the UK Government using its political influence to work with producing countries to create the right economic, business and legal climate to encourage long term investment in energy supplies, with financial and technical assistance being provided by industry and commerce.

Investment in infrastructure is crucial. With gas being delivered over greater distances and from a variety of sources, it will be necessary for infrastructure of sufficient capacity to be in place to transport the required volumes of gas at competitive prices. This means not only expansion of the international pipeline networks, including new interconnector links with the UK, but investment at home in the National Transmission System (NTS) by Transco.

We estimate that the UK continental shelf (UKCS) will still be producing enough gas in ten years time to meet two thirds of the countrys forecast demand, says David Odling, UKOOAs director of policy. However, in view of the increasing volumes of gas that will need to be imported to replace UKCS production and meet expanding demand, investment in the NTS is vital to provide the flexibility to handle varying patterns of supply and demand and the resilience to cope with unexpected supply disruptions.

The paper highlights that the risks to the economy of underinvestment in the NTS far outweigh the costs of some extra investment.

It notes that the consequences of a significant gas supply failure are likely to be counted in £billions, not £millions, and that any such investment should be seen not just as insurance, but as an investment in security of supply.

Key points in the paper are:

-Maximising recovery of UKCS reserves should be at the heart of UK energy policy as this will prolong self sufficiency and sustain security. Additional taxation or ill considered regulation will discourage investment and reduce the ultimate recovery of the UKs oil and gas reserves;

-70 per cent of the worlds gas reserves are estimated to lie within 5,000km of Europe. Traditional gas supply sources for Western Europe have been the North Sea, particularly from the UK, the Netherlands and Norway; onshore reserves concentrated in the Netherlands, Germany, Italy and Austria, Russia and Algeria;

-Imports of foreign gas to the UK are not new. During the 1980s the UK imported around 20 per cent of its gas supply from Norway and during the 1960s and 1970s, Algerian LNG was imported at Canvey Island on the River Thames;

- Major European gas markets such as Germany, Italy and France have existed as net gas importers for many years;

- Transco expects UKCS production and gas imports via existing infrastructure to be sufficient to meet UK demand until 2005-2006;

- Beyond 2006-2007 significant additional gas will need to be imported and new gas import facilities constructed;

- The limited interconnection capacity between the UK and continental Europe could lead to supply shortfalls, unless action is taken to develop new import routes;

- However the market is already responding with plans for new Norwegian and Dutch pipelines and, as UKCS production declines, spare capacity will be become available in existing pipelines;

- There will be an increasing role for LNG (Liquified Natural Gas) in future and already new investment in supplies are being planned at Isle of Grain in Kent and Milford Haven in south Wales.

- The need for new gas storage facilities is particularly significant in the UK, where supply swing capability (ie the ability for increase delivery to meet additional demand) from North Sea fields is likely to decline rapidly over the next ten years and there is only a limited degree of interconnection with other gas markets.

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Notes to Editors

1.SECURITY OF GAS SUPPLIES, an information paper by the UK Offshore Operators Association is available electronically here

2.The UK Offshore Operators Association is the representative body for offshore oil and gas exploration and production companies in the UK. It has 29 members.

3.The UK is currently the worlds fourth largest producer of natural gas.

4.Total UK gas production in 2002 was 107bcm. Remaining UKCS gas reserves are estimated at around 1,010bcm.

5.UK gas production is believed to have peaked in 2001 at 110bcm.

6.UK gas demand rose from 56.6bcm in 1991 to 95.4bcm in 2002 (+85 per cent).

7.In the UK increased demand for gas has generally been met by increased production from the UK continental shelf (UKCS) and the UK has been an exporter of gas since 1992.

8.Having grown very rapidly during the 1990s, demand for gas in Britain is expected to grow at a slower rate of between 15 per cent and 20 per cent over the next ten years.

For more information, please call 020 7802 2400.