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Page added on September 27, 2015

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Britain must prepare for life without oil


The man tasked with saving the UK’s North Sea oil industry says it will take two years or more to recover from its problems and that Britain should start preparing for life without oil.

Last year Sir Ian Wood wrote a report, commissioned by the government, into how to maximise the North Sea’s oil and gas, which has been a big driver of the economy since the 1970s but has been in long-term decline since the late 1990s.

In an interview with the Financial Times, Sir Ian Wood warned: “Oil at $35 to $55 [per barrel] is the likely scenario into 2017, and I think the best guess right now for a recovery in the North Sea is 2017-18.”

The North Sea today produces about 1.5m barrels of oil per day, compared with 4.5m at its peak.

Its problems have increased significantly over the past year, however, as the price of Brent crude has dropped from $115 a barrel last June to about $50.

The Office for Budget Responsibility, the UK’s independent forecaster, has told ministers to expect just £2bn from North Sea tax revenues between 2020 and 2040. Officials believe any revenue generated during that period will be all but cancelled out by the costs of decommissioning old platforms.

The government has become so concerned about the entire future of the industry that it has put in place a rescue plan involving tax breaks and greater co-operation between operators. But Sir Ian, who devised that plan, believes the pain is far from over.

North Sea divisions of multinational producers would find it increasingly difficult to secure funds from head office, he warned, not least because it was cheaper to drill for oil in every other part of the world. “It is going to be a very tough budgeting round for the [multinational] operators. I think there will be significant reductions in the level of budget made available [to their UK branches].”

Since the beginning of 2014, about 5,500 jobs have been lost in the industry, while exploration has slowed significantly. Executives say permanent damage could be done if companies fail to maintain capital spending, stop exploring for new oil and start decommissioning early.

Sir Ian echoed those warnings: “The industry will lose jobs, whole teams, plants and equipment. But we must be really careful we don’t lose infrastructure, as the damage will then be permanent.”

After the Wood review was published last year, George Osborne, chancellor, announced a series of tax breaks for the industry. Sir Ian urged him to go further and introduce special arrangements to encourage larger producers to sell declining assets to smaller companies.

While this has happened with several fields as oil majors depart the North Sea, executives say dealmaking has been limited by uncertainty over who would bear the liability of decommissioning a platform at the end of its life.

“The truth is no one is paying a lot of tax at the moment,” he said. “But the government could do more to help the transfer of assets and keep fields going.”

Whatever happens, Sir Ian said the UK should prepare for a future without oil in the next few decades. “By the middle of the century, the UK will have largely exploited its offshore oil and gas reserves,” he warned.

For the Scottish National party, which last year based its economic case for independence on $110-a-barrel oil, this could have lasting consequences, even if support for independence has risen over the past year.

Sir Ian angered some independence supporters last year when he warned that Alex Salmond, then the Scottish first minister, was overestimating the amount of oil left in the seabed.

Since then he has avoided entering the debate over Scotland’s position in the union. But he said: “I am not going to make political comments, but you can just do the calculations. The independence issue for Scotland clearly should be looked at without taking account of significant oil and gas revenues.”


17 Comments on "Britain must prepare for life without oil"

  1. JuanP on Sun, 27th Sep 2015 11:42 am 

    The North Sea oil and gas industry is in irreversible decline and will remain a money loser for the foreseeable future. Those wells will be left there to rot and rust because there will be no money to decommission them. The North Sea will become an environmental disaster area for the rest of our lives.

  2. penury on Sun, 27th Sep 2015 11:53 am 

    The oil and gas industry is in irreversible decline and will remain a money loser for the foreseeable future. Those wells will be left there to rot and rust. Fixed it for you.

  3. Hubbert on Sun, 27th Sep 2015 1:39 pm 

    In about 50 years we will be running out of everything, it’s not just oil. The World will be a sci-fi nightmare. Only people without children will be able to die in peace.

  4. theedrich on Sun, 27th Sep 2015 5:58 pm 

    Well, well.  An oil-less future could not happen to a more deserving people.  After having destroyed Europe with two World Wars, Rule Britannia is about to vanish from the earth.  Maybe their hoity-toity, anti-White upper classes can migrate to Black Africa or India to train the natives on how to display the British form of hypocrisy.  It is doubtful whether America will be willing to come to England’s aid when the English king is a mulatto.

  5. makati1 on Sun, 27th Sep 2015 8:10 pm 

    Hubbert, 50 years? Try 5 or so. When the financial system goes, so goes most everything else. And it won’t be coming back.

    As for the rest of your comment, yes, I agree. But I would compare the future to be more of a horror zombie movie than SF where something/someone to eat will be the main drive of those w

  6. makati1 on Sun, 27th Sep 2015 8:12 pm 

    Well said, Theedrich. But, I doubt that the Us will be in any position to aid anyone by then. Not even themselves.

  7. makati1 on Sun, 27th Sep 2015 9:58 pm 

    Looks like the UK has a lot of problems…

    “Britain banks on electricity imports to keep lights on”

  8. dubya on Sun, 27th Sep 2015 11:42 pm 

    The British system of financial security – sell at $10 per barrel, buy at $100 per barrel.

    I think they also sold off their gold reserves at a suitably low price.,_1999%E2%80%932002

    My only question is why are they thinking about tax breaks, when the only current functional solution to fossil fuel consumption is an (increased) carbon tax.

  9. makati1 on Mon, 28th Sep 2015 6:27 am 

    The UK may have more to worry about:

    “Some scientists are saying that a record-setting area of cold water in the North Atlantic, revealed by recent National Oceanic and Atmospheric Administration (NOAA) data, could be a sign that climate change is causing the ocean current to weaken.

    This trend could have dramatic consequences, including the alteration of temperatures on the European and North American continents.”

    Now wouldn’t that throw a monkey wrench into things? Global warming causing a chill in the Western countries by shutting down the Gulf Stream.

  10. Kenz300 on Mon, 28th Sep 2015 9:04 am 

    Every country needs to develop a plan to become more energy self sufficient and economically self sufficient.

    Fossil fuels are in decline and alternative energy sources are the future.

    The Oil producers, miners and other fossil fuel industries will all go kicking and screaming into the future. They would be better off if they changed their business models and became ENERGY companies that embraced alternative energy sources.

    It is time to divest from fossil fuels and make new investments in alternative energy sources like wind and solar.

    Climate Change is real…. we need to deal with the cause (fossil fuels)

  11. GregT on Mon, 28th Sep 2015 6:02 pm 

    “Global warming causing a chill in the Western countries by shutting down the Gulf Stream.”

    If we shut down the gulf stream, which already appears to have begun, we have far more serious issues to worry about than a “chill”.

    According to Dr. Peter Ward, and others, shutting down the Gulf Stream would stop oxygen mixing in the oceans, and would promote bacterial growth that would give off massive amounts of hydrogen sulphide gas. In other words, game over for life as we know it on the good old planet Earth. Purple oceans, green skies, and the stench of billions of rotting corpses.

  12. Nony on Mon, 28th Sep 2015 6:05 pm 

    Is that like crossing the streams in Ghostbusters? 🙂

    Total protonic reversal.

  13. GregT on Mon, 28th Sep 2015 6:09 pm 

    Hardly a laughing matter Nony.

  14. Groan on Mon, 28th Sep 2015 6:24 pm 

    Theedrich – Britain destroyed Europe with two world wars? Unusual take on 20th century history there, followed by even more confusion. Makati liked it – which says it all really.

  15. JuanP on Mon, 28th Sep 2015 7:50 pm 

    GregT, this article on the Gulf Stream current slow down and associated issues is very interesting. This is a very important problem that most people ignore.

    Here in Miami Beach the last five high tides have been some of the highest ever because of a confluence of the Supermoon, sea level rise, and slowing Gulf Stream current. This weekend we experienced unprecedented street flooding throughout the city. You couldn’t even walk on many sidewalks because they were flooded. The curbside outside the community garden had six inches of water. We were very lucky it didn’t rain or the damage would have been catastrophic.

    Many cars were damaged while driving or parked on the streets. These things are ruining people’s lives. Climate Change, Global Warming, and Sea Level Rise are here now where I live.

  16. GregT on Mon, 28th Sep 2015 8:42 pm 

    Ya Juan,

    Most people are completely unaware of what is happening with the Gulf Stream. So much going on these days that it’s difficult to see the big picture.

    We have our own Blob in the Pacific now. It’s been hanging around since 2013. Many in the scientific community are extremely concerned.

  17. Davy on Mon, 28th Sep 2015 8:48 pm 

    Great article Juan, it is logical the earth/climate system is going to begin reacting to human forcing. The gulf stream irregularities is just another example of what I feel is clearly abrubt climate change.

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