Oil warnings ignore bigger picture
As professional engineers employed in the research and development sector of the oil industry, we feel that the comments made by Sir Ian Wood (“Oil and gas will start to run out in 16 years, says tycoon”, your report, 21 August) require some qualification. To say that “dwindling North Sea reserves would start to damage the economy and cost jobs within 15 years” is extremely counterproductive.
At a time when the industry is the most buoyant it has been in 40 years we need to do everything we can to attract young graduates. If we continued to rely on oil flowing naturally then Sir Ian may have a point regarding oil production tailing off in the foreseeable future, however we are not, now, relying on oil flowing naturally.
Oil is produced from porous rock and at some point the pressure above will cease to create sufficient force to cause the oil to flow naturally and when oil was first discovered in the 1970s the wisdom of the time was that only 30 per cent of the reserves would be recovered. Enhanced recovery technologies developed since then, such as gas lift, water injection and electric submersible pumps (ESP) are improving continuously; thus as the recovery rates increase so too do the recoverable reserves.
It is important to note that when assessing the value of oil and gas, the assessment is always made on the basis of recoverable reserves.
A prime example of improved recovery is the Ekofisk Field in Norway. It came on stream in the 1970s with a prediction that it would produce 17-18 per cent.
However, due to the deployment of gas lift and water injection techniques they are now projecting recovery rates of 50 per cent with an anticipated further 40 years of production. This is being replicated across all the major fields in Norway.
Statoil, for example, is currently redeveloping the giant Gullfaks field which has been producing for 40 years to permit a further 40 years of production to take place. The latest fields to be developed in the UK – Mariner, Bressay and Bentley – being heavy oil fields, would not have been economically viable ten years ago and, thus, would not be included in energy projections.
However, with the development of enhanced recovery methods, these are now viable. Better understanding of the reservoirs and continuously improving recovery techniques will continue to improve recovery rates and, in turn, improve the life of the oil field.
Norway is projecting 50 to 100 years of production. There is no logical reason to why this would not also be the case for the UK.
Andrew Beck CEng
Sean Reilly CEng
East Craigs Rigg
As authors of the N-56 report on the future of oil and gas we very much welcome Sir Ian Wood’s confirmation that recoverable oil is far higher than that outlined in the Office for Budget Responsibility (OBR) figures. What we stated in our report is consistent with both Sir Ian Wood and also oil economist, Professor Alex Kemp. We highlight that under a high-production scenario there are 14.9 billion barrels of oil and gas recoverable between now and 2040, and we also considered a medium-production scenario of 12.2 billion barrels and a low-production scenario of 9.5 billion barrels.
Sir Ian states there are 15-16.5 billion barrels and, in evidence to the Scottish Parliament in April, Professor Kemp stated that 14 billion barrels could be produced by 2014 with implementation of the Wood Review recommendations to improve production efficiency.
There are indeed an estimated up to 24 billion barrels in reserves, as acknowledged by Sir Ian in his own review on the future of the industry, but these are not all recoverable as the figures above illustrate although as technology improves these will potentially increase.
The recommendations outlined in our report to maximise recovery include a more competitive tax regime for the North Sea, such as tax incentives to boost growth, a long-term oil and gas industrial development plan to foster economic growth and the co-location of policy and decision makers responsible for oil and gas taxation and regulation to be moved from London to Aberdeen.
Some of these are Sir Ian’s own recommendations in his Wood Review.
If Sir Ian is right and there are up to 16.5 billion barrels recoverable, then future oil taxation revenues would be even higher than this, perhaps as high as £400 billion between 2014 and 2040, far higher than the OBR figure of approximately £60bn.
This confirms the N-56 analysis that, based on rising oil prices and industry views on recoverable reserves, the remaining value of oil to the economy and to the Treasury could total around the same as the total historic value received to date.