Tensions in East ‘underline case for domestic gas production’, says industry
- Credit: IOG
The UK’s oil and gas industry is making the case for domestic production to continue to fill the energy gap against a backdrop of rising tensions between Russia and Ukraine.
The sector’s trade body, Oil and Gas UK (OGUK) is warning further price rises are possible as the situation in Eastern Europe hots up. Any economic sanctions against Russia could potentially result in a retaliatory move to turn off the gas taps from Siberia – creating shortages.
Last year’s COP26 climate change conference in Glasgow urged governments to switch swiftly to low-carbon technologies to stave off climate catastrophe – but the UK remains heavily reliant on carbon-based energy at the moment.
OGUK has been lobbying hard for the home-based industry to continue to fill what it can of the energy gap while low-carbon solutions are ramped up.
Its research suggests gas production from the UK’s continental shelf will decline 75% by 2030 unless new fields are opened. This would the UK increasingly vulnerable to global events causing shortages and price shocks, it warned.
The price of gas soared to eye-watering levels last year, rocketing from an average of 24.9p per therm (about 100 cubic feet of gas) in 2020 to a spot price peak of 454p per therm in 2021.
UK energy watchdog Ofgem is expected to raise the price cap on average bills from £1277 to £2,000 and a further £400 rise is predicted in October.
In 2020, 378bn cubic feet of gas was extracted from the Southern North Sea, along with just over 150,000 barrels of oil, according to OGUK.
OGUK argues that finds off the coasts of East Anglia, Lincolnshire, Yorkshire and off northern Scotland will be needed if the UK is to maintain its own supplies of CO2-emitting natural gas as it transitions to carbon-zero technologies.
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The UK relies on oil and gas for 73% of its total energy, according to OGUK figures, and gets 51% of its gas from domestic production, 26% from pipeline imports from continental Europe, and 23% from Liquid Natural Gas (LNG) imports.
Most of the gas imported into the UK comes from Norway, which supplies a third of UK gas. Russia supplied the UK with about 2.5bn cubic metres of gas (3.4%) in 2020 and the rest came from global LNG markets.
Our domestic gas comes from the North Sea, the Atlantic around Shetland and in the Irish Sea.
The UK burns through 74m cubic metres of gas a year, with average householders using 1,100 cubic metres annually, making it one of Europe’s heaviest per capita users.
But OGUK says many UK gas fields are becoming depleted and new ones need to be developed to replace them – or become more reliant on imports.
Geological surveys indicate there are fields containing oil and gas equivalent to 10-20bn barrels of oil – which would be enough to sustain production for 10-20 years.
Without investment, OGUK estimates that domestic output would decline by three quarters by 2030. But new schemes in the Southern North Sea and elsewhere are moving forward this year.
London-based firm IOG, which operates 20 miles off the Lincolnshire and Norfolk coasts, hopes to send the first gas from its Elgood and Blythe projects into Norfolk’s Bacton terminal early this year.
Gas explorer Deltic Energy has high hopes its drills will find gas reserves in 2022 after promising results from recent seismic surveys in the Southern North Sea off the coast around Hull, Newcastle and Lincolnshire.
At the same time as exploring new oil and gas fields, the UK is ramping up its move into the greener technologies needed to achieve net zero carbon.
These include hydrogen production, wind energy and carbon capture and storage.
Green campaigners want the UK to switch to clean energy now, but the oil and gas industry argues that UK-sourced carbon fuels are critical in keeping the lights on while new energies are scaled up.
OGUK energy policy manager Will Webster said: “If the Russians reduce deliveries of gas to Europe, then it has to come from somewhere else, most likely as shipments of liquefied natural gas. That will increase competition for supplies, driving up prices and consumer bills even more. Conversely, any additional gas we produce ourselves will help alleviate this process.
“In the longer term, if UK gas production is allowed to fall as predicted, then our energy supplies will become ever more vulnerable to global events over which we have no control – as we now see happening with Russia’s threatened invasion of Ukraine.”