UK: Energy chief says reorganized agency is a 'voice for business'

Malcolm Wicks is a member of the British Parliament and the Minister of State for Energy at the newly created Department for Business, Enterprise and Regulatory Reform (BERR). In the latter capacity, he works to realize the UK’s policy goals of safe, secure and sustainable energy supplies and ultimately a low-carbon economy, through competitive and independently regulated energy markets.

Question: Since the old Department of Trade and Industry (DTI) was reorganized as the Department for Business, Enterprise and Regulatory Reform (BERR) in June 2007, how has its role changed with regard to the UK upstream oil and gas industry?

Answer: My department’s role is to help ensure UK business success in an increasingly competitive world. We are the voice for business across government. Our main strands of activity focus on promoting the creation and growth of business and a strong enterprise economy, delivering free and fair markets, and ensuring the reliable supply and efficient use of clean, safe and competitively priced energy.

Our role in promoting North Sea investment and supporting the UK oil and gas industry has not altered significantly. We maintain strong links with industry via the successful oil and gas industry forum “Pilot,” which continues to deliver value measures for the basin.

This sector remains a key contributor to the UK economy and to our overall energy needs, and we will continue to encourage further investment and exploration activity to ensure maximum economic recovery of our indigenous hydrocarbon resources.

Q: What, if any, functions of the old DTI have been moved to other departments?

A: BERR is largely made up of former DTI functions and now also includes the Better Regulation Executive, which joined us from the Cabinet Office. The Office of Science and Innovation transferred to the Department for Innovation, Universities and Skills-another new department formed last year. But I don’t think people should get too caught up with this machinery of government changes; we work closely with all other government departments to ensure a fully integrated approach when dealing with business, the economy, energy and regulation.

Q: How dramatic a production decline does the government predict in the next five years, and what will be the strategy to deal with this decline?

A: Buoyed by production from the large Buzzard Field, oil production actually rose slightly in 2007. Overall, UK oil and gas production are now both projected to decline at around 6% per year through to 2013, though there is some uncertainty around central estimates.

The rate of decline now projected is significantly slower than we have experienced since production of oil and gas peaked, respectively, in 1999 and 2000. But we cannot rest on our laurels; we will continue to work with industry to ensure that maximum opportunities for investment and exploration are available in the UK, so that the North Sea’s full potential can be realized.

Q: How much do you expect to see UK imports increase in the next five years, as an annual percentage? From where will these imports primarily come?

A: The UK is now a net importer of oil as well as of gas. Our dependence on both is expected to rise as UK production declines, potentially to a third of oil consumption and half of gas consumption by 2013. It is for the market to determine where our imports will be sourced. Given its proximity and the import infrastructure already in place, it is likely, however, that Norway will remain a principal supplier of both oil and gas to the UK.

Q: How much of an incremental oil production increase do you expect as a result of the recent decision to exempt redevelopment of decommissioned fields from the Petroleum Revenue Tax (PRT), and what parties have applied for this exemption?

A: We have not made estimates of the extra production that might result from this change, but it is understood that appraisal of one field would not have proceeded without it, and we predict that more will follow in the years ahead. There is no requirement to apply for the exemption; it applies automatically when fields meet the criteria.

I think the most important thing with this measure is to see it in the wider context, both in terms of the government’s support for brownfield redevelopment and broader fiscal work. The PRT measure was the first product of our discussions with the oil and gas industry about the strategic challenges facing the North Sea fiscal regime. The Treasury and the Revenue and Customs department issued a joint consultation document last December that included further proposals for changes to the fiscal regime, and a commitment to continue to engage in discussions about outstanding issues.

Q: How is the government investing in research and development for the E&P industry?

A: Exploration and appraisal drilling levels have been steadily increasing over recent years, and 2007 saw the highest number (111) of wells drilled since 1996 (112). Looking at quantities found, 2006 was a significant year for discovering oil and gas-the highest level since 2001-with the equivalent of around half a billion barrels discovered and around 40% of exploration wells finding potentially commercial oil and gas accumulations. Last year was also positive with initial indications suggesting between 300 and 400 million barrels of oil and gas found.

As far as research and development are concerned, in parallel with other technology initiatives, my department directly funds a number of joint industry projects developing innovative techniques for finding and extracting UK Continental Shelf hydrocarbons. Themes are as diverse as seismic imaging to improved reservoir fluid understanding.

Q: What other steps does the government plan to take in 2008 to encourage domestic E&P activity?

A: It is important that we maintain momentum, and we are continuing to pursue initiatives to generate more exploration and appraisal drilling. This year we launched a new (25th) offshore licensing round that included a record-breaking 2,297 blocks or partial blocks. Seventy-two blocks classified as fallow in 2007 have been either fully or partly relinquished in time to be on offer in this round.

We are continuing to take forward work on ensuring that acreage is being properly worked on. The fallow initiative continues to encourage companies to relinquish unworked acreage so that it can be released and offered in future rounds. We are also considering the oldest offshore production licenses, issued in the 1960s and due to start expiring from 2010 onward, and have started a consultation process with licensees to ensure that production can continue from existing fields while exploration and appraisal activity is maximized in the surrounding areas.

In addition, we continue to see success with the Promote Licenses, with 40% of those offered in the 23rd Round now continuing into the second-drilling/exploration-phase. We have also seen more drilling activity and success in the West of the Shetlands region and have a government/industry task force focusing on how to unlock gas reserves there. And, as part of the ongoing Treasury-led discussions on the North Sea fiscal regime, the government is also discussing with industry whether there is a need for any special measures to help incentivize development of marginal discoveries.

Q: What new technologies are likely to have the biggest impact on domestic production, and how?

A: For the oil and gas industry, the global upturn in activity has fueled sharp rises in costs and this has indeed created challenges. So we need to continue to work closely together to reach solutions to these obstacles and unlock the full potential of the basin. The industry has an excellent track record when it comes to overcoming hurdles, and I am confident that it will continue to apply innovative approaches. Government will continue to do all it can to make sure that industry succeeds.

There are a number of innovative technology providers out there bringing new technologies to the market right now. Challenges to address are better imaging or processing of our reservoirs, as well as technologies that impact directly on production rates. Work is also being taken forward on ways to reduce operating expenditures of key activities to improve the economics and longevity of fields, and on technologies that allow the development of the hydrocarbons that are more difficult to access and on previously marginal pockets.

Q: Do you foresee various alternative energy projects, such as the Orkney tidal project (estimated to have as much as 10 GW of generating potential), as likely to displace domestic natural gas demand for electricity generation and, if so, by how much?

A: The government is currently developing its strategy to significantly increase the contribution from renewable energy sources, in line with the European Commission’s proposal in the recently published draft directive that 15% of UK energy supply should come from renewables by 2020. The UK’s tidal resources will be part of the strategy, with the largest tidal stream resource potentially in the Pentland Firth and the largest tidal range resource in the Severn Estuary.