Business Weekly - Cambridge, UK

Capital spend in the gas fields is set to rise to £375 million this year – up 35 per cent on 2004.

An initiative is underway to prompt greater industry-government collaboration to maintain investor confidence and maximise recovery of reserves from the Southern gas basin.

The UK is in a race against time to cash in, Malcolm Webb – chief executive of the UK Offshore Operators Association – told the East of England Energy Group’s Southern North Sea Conference.

Webb said the basin had produced around 1130 billion cubic metres of gas to date and currently supplied just under a third of the country’s total gas needs.

With the development of new pipeline capacity into Bacton and Easington, the region would be able to meet up to 60 per cent of the UK’s gas demand by 2008 and emerge as a vital centre for Britain’s gas import/export infrastructure.

He said: “Total spend in the southern sector of the North Sea has been around £700 million per annum since 2003, while operating costs stand at around £350 million a year for the same period. Capital expenditure in 2005 is forecast to increase 35pc to £375 million.

“This increased investment appears to be keeping unit operating costs under control, at least in the short-term, bucking the trend for the rest of the UK continental shelf where average unit operating costs are twice those found in the Southern North Sea.”

But Webb warned: “The industry is in a race against time to maximise recovery of UK oil and gas reserves before pipeline and production infrastructure is decommissioned.

“In a joint study involving the DTI, UKOOA estimates that around 40 per cent of infrastructure could be decommissioned by 2020.

“However, this could be delayed by 10 to 15 years if the industry can maximise recovery and develop the full potential from existing fields and sustain current levels of exploration and appraisal activity.

“UKOOA’s 2004 activity survey showed that investment in the North Sea is continuing to recover from the unexpected tax hit in 2002; this is reflected in higher predicted volumes for the first time in four years. However, rising costs across the whole of the basin continue to undermine global competitiveness.

“To extend the life of UK oil and gas production will require not only massive further investment from the industry but also constructive engagement from all other stakeholders, including the Government in the form of a stable and predictable fiscal regime and expert, well-resourced and focused regulation.

“The window of opportunity can easily close if stakeholders should fail to take the right actions and history will not judge us well if we get it wrong because the demonstrable loss to the UK – in terms of tax revenues, jobs, investment and the balance of trade – would be significant.”

John Best, chief executive of EEEGR, said the importance of gas as an energy source must be recognised: “There seems to be a drift towards renewable energy, which is very important, but we shouldn’t take our eye off the ball.

“The gas industry is here and producing the nation’s energy. We must continue to get the message across so people don’t forget that this industry is vital to the whole country.”