UK needs North Sea regulator
12 Nov 2013
The UK needs a new dedicated regulator for the North Sea if a potential extra 24 billion barrels of oil equivalent (boe) are to be extracted, according to former Wood Group chairman Sir Ian Wood.
Wood was commissioned by the Department of Energy and Climate Change (DECC) in June to carry out a review of the UK oil and gas sector, looking at the challenges including declining exploration and production rates and ageing infrastructure.
His interim report, published yesterday, recommends that regulation of the UK Continental Shelf (UKCS) is taken out of DECC’s remit and handed to a new, dedicated arm’s length regulator.
The report says such a body is needed due to both a decline in skilled personnel at DECC and the highly fragmented nature of North Sea development.
“In the early 1990s, the UKCS economic and operational Regulator had around 90 personnel at a time when there were approximately 90 fields in production,” says the report.
“The UK now has over 300 fields in production but the Regulator is down to less than 50 personnel, working on more complex licensing and stewardship issues.”
We need to strengthen the capacity and capability of our stewardship regime to enhance collaboration significantly across the North Sea
Sir Ian Wood
These fields tend to be smaller, with 90% of current fields in production on the UKCS producing less than 15,000 boe per day, but failure to collaborate on supporting infrastructure has led to development costs per barrel rising five fold over the last decade.
“Under the current approach, operators have pursued individual commercial objectives in insolation, with limited shared commitment or obligation to maximise economic recovery across fields or within regions of the UKCS,” says the report.
“New infrastructure is typically designed only for specific developments and without taking account of wider potential demand.”
Wood said better market oversight, guiding industry collaboration, was needed to improve North Sea output.
“I have interviewed 40 active companies in the oil and gas industry representing more than 95 per cent of UKCS production, key government figures, and regulators from neighbouring regimes such as Norway and the Netherlands,” said Wood.
“The evidence is clear. We need to strengthen the capacity and capability of our stewardship regime to enhance collaboration significantly across the North Sea if we are to meet the challenging demands of maturity and diversity and maximise the economic benefits for both the country and the industry.”
He said he believed full and rapid implementation of his recommendations would deliver at least 3-4 billion boe more than would otherwise be recovered over the next 20 years, bringing over £200 billion additional value to the UK economy. Further support from HM Treasury in the form of tax breaks, he added, could help UKCS meet its potential of a further 24 billion boe.
