Department of Energy and Climate Change
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Wood sets out £200 billion roadmap for future of offshore oil and gas industry & world’s first gas CCS plant planned

The British economy could receive a potential £200 billion boost over the next 20 years, through the recovery of an additional 3-4 billion barrels of North Sea oil and gas, according to a report commissioned by the UK Government published today.

Government using the security of its pooled resources, will be able to fast-track all the recommendations of Sir Ian Wood’s ground-breaking review on maximising recovery from the UK Continental Shelf.

The UK government offers the strongest basis to unlock the investment needed to achieve the objective Sir Ian outlines of maximising economic production. This will involve improving the efficiency with which the industry operates, increasing production of oil and gas by one third, and boosting jobs in an industry that already employs 450,000. Whilst short-term prospects are good, with investment at record levels of £14 billion, the UK Continental Shelf faces unprecedented challenges.

Production has fallen by 40% in the last 3 years, and the efficiency with which oil and gas is produced has fallen to 60%, costing the economy £6 billion.

The UK is reliant for North Sea oil and gas for more than half of total oil and gas used, and will continue to need around 70% of gas in the energy mix out to 2030.

Maximising domestic oil and gas production would increase Britain’s domestic energy security and reduce the UK’s reliance on expensive imports.

The size of the UK, with its large tax and consumer base, will allow Government to realise the additional economic prize set out by Sir Ian Wood.

Energy and Climate Change Secretary Edward Davey announced the changes in Scotland, where he also visited Peterhead with Deputy Prime Minister Nick Clegg, to sign a multi-million pound deal with Shell to develop the next stage of their Carbon Capture and Storage (CCS) project on a gas-fired power station – a world first in low-carbon projects.

Energy and Climate Change Secretary Ed Davey said:

“Britain will still need large amounts of oil and gas, even as we cut our carbon emissions over the coming decades. So with recent large falls in North Sea production, I commissioned this report from Sir Ian Wood to see how we can reduce the oil and gas we would otherwise import by boosting UK offshore production.

“I fully back Sir Ian Wood’s recommendations and we will start implementing them immediately.

“The UK Government already supports Scottish energy projects worth hundreds of millions of pounds each year, and our large tax and consumer base will ensure that the potential £200 billion benefit Sir Ian Wood has identified can be realised.

“This will be good for our energy security, good for the economy and good for jobs.

“We have also invested in the world’s first gas CCS plant today planned at Peterhead. This project envisions a cleaner, greener future for the North Sea and will support thousands of green jobs.”

Ed Davey was accompanied at the signing of the contract for the Peterhead project by Prime Minister David Cameron and Deputy Prime Minister Nick Clegg.

Prime Minister David Cameron said:

“For many years the UK has supported the North Sea oil and gas industry and we have worked together to make this an economic success the whole country can be proud of. I promise we will continue to use the UK’s broad shoulders to invest in this vital industry so we can attract businesses, create jobs, develop new skills in our young people and ensure we can compete in the global race.”

Deputy Prime Minister Nick Clegg said:

“The innovation of the UK’s energy industry is something we should be really proud of and the fact that we are a world leader in carbon capture and storage is a great example of our country’s ingenuity.

“Today’s multi-million pound deal with Shell will help to safeguard thousands of jobs and power half a million homes with clean electricity.

“It shows we can build a stronger economy and do it fairly by protecting our environment for future generations.”

The Peterhead and White Rose CCS projects are the EU’s largest commercially sized projects with this phase supported by around £100m from the UK Government. They could provide more than 2,000 jobs during construction and once built, clean electricity for over a million homes.

They demonstrate Government’s commitment to tackling climate change and are an example of the support provided by the UK Government to Scotland’s flourishing low carbon sector – support which runs to hundreds of millions of pounds a year.

Sir Ian’s key recommendations include:

  • A new shared strategy for “maximising economic recovery (of oil and gas) for the UK”, with commitment from the government (HM Treasury and a new Regulator) and the oil and gas industry.

  • Creation of a new arm’s length regulatory body to oversee and develop this programme of change and growth.

  • Greater collaboration by industry in areas such as development of regional hubs, sharing of infrastructure and reducing the complexity and delays in current legal and commercial processes.

The fiscal regime introduced by the government will lead to greater investment in the North Sea - the decommissioning relief certainty, introduced in October 2013, alone is worth upwards of £20bn. An independent Scotland would have to commit around £3,800 per head – over ten times more than when costs are spread across the UK – to match this.

The Office for Budget Responsibility cut the revenue forecast for the North Sea by £4 billion at the Autumn Statement. This would have a disproportionate impact on the budget of an independent Scotland. The UK government can afford this support, and take the short term hit to tax receipts, because of the size and diversity of its economy.

Notes for Editors

Wood Review

  • Sir Ian Wood’s review ‘UKCS Maximising Recovery Review’ is available online
  • The review was commissioned by Secretary of State Ed Davey in June 2013 Sir Ian Wood reported his interim findings in November 2013.
  • Sir Ian Wood will Chair an Interim Advisory Panel to provide advice and a stakeholder perspective on the implementation of the Review’s recommendations.
  • DECC officials are undertaking detailed planning work around establishing the new arms-length body and aim to have the new body in operation, at least in shadow form, by the Autumn 2014.

CCS Commercialisation Programme

  • Peterhead and White Rose proposals are the two projects being supported under the Government’s £1 billion CCS competition.
  • £1bn has been committed to the Programme, with around £100m of that funding being invested now to support the detailed planning and engineering of these two projects
  • In late 2015, the projects will take final investment decisions with Government taking decisions shortly after on investing the remainder of the £1bn funding to support construction of up to two projects
  • The Peterhead and White Rose projects expect to award sub-contracts to around 10 UK based companies including Technip which is establishing a CCS Centre of Excellence at its Milton Keynes office.
  • With the award of the two FEED contracts, the Reserve Projects announced in March 2013 will now be deselected
  • As outlined in the Government’s Response to the Cost Reduction Task Force published in October 2013, DECC is continuing discussions with CCS developers outside of the Competition on what measures they may need to take their projects forward. This includes discussions with the Captain Clean Energy Project and the Don Valley CCS Project under the FID Enabling route.
  • The UK has the best offshore CO2 storage resources in Europe, estimated at around 70 billion tonnes which would be sufficient to store 100 years’ worth of current emissions from the electricity sector.

Oil and Gas Industrial Strategy

  • The Oil and Gas Industrial Strategy was jointly launched by government and industry in March 2013 to help secure billions of pounds of future investment and thousands of jobs for the UK’s oil and gas industry. It is working to put government and industry on the right path to ensure future decades of investment and production in the North Sea. It is also seeking to maximise economic recovery of oil and gas from the UK Continental Shelf and support a dynamic supply chain which sustains high quality jobs in the UK.

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