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Page added on September 8, 2015
North Sea oil at ‘serious risk’ of shutdown
There is a “serious and urgent risk” that parts of the North Sea oil industry will be abandoned unless energy companies join forces to become more efficient, the man in charge of reviving the sector has warned.
Andy Samuel, the head of the new Oil and Gas Authority, told the Financial Times that companies need to fundamentally change some of their working practices if they are to keep parts of the lifeline of the Scottish economy alive.
Companies have been struggling for the past 14 months with a low oil price, which has plunged more than 50 per cent since last June and now sits around $50 a barrel. In response, the government has offered companies a range of new tax breaks, but has also urged the industry to work together, appointing Mr Samuel to oversee that process.
He warned that there could be a “domino effect”, where one company quits an area of the North Sea, leaving others to share more of the cost of maintaining infrastructure. In some fields, for example, several companies share the cost of pipelines and processing plants. If one or more companies leave, others may be unable to bear those costs alone.
In recent months several oil majors have announced their intention to sell off assets in the North Sea as declining production and lower prices take their toll. Shell said in July it would shrink its portfolio in the region, while France’s Total last month offloaded $900m of assets in the area.
Mr Samuel said companies had responded well by sharing resources and data, but that many were only doing so with the help of his organisation. “We would rather that they could sort it out for themselves,” he said.
In a report to be released on Monday, Mr Samuel warns that “whole areas of the continental shelf” could be shut down if critical infrastructure is decommissioned too soon.
But he says that joint arrangements — for example where one oil producer without enough gas to power a turbine could share the gas from a rival with a glut of gas — were difficult to agree between companies competing against each other.
Erin Moffat, an analyst at Wood Mackenzie, said: “Companies could benefit for example by sharing joint contracts for supply vessels, or by sharing data on where they are and are not finding oil. But that isn’t something we’re seeing at the moment.”
In recent months however, companies have begun to acknowledge that such a change is needed.
Industry executives will meet in Aberdeen this week as part of the biennial Offshore Europe conference. It will be the first time the North Sea oil industry has gathered en masse since the oil price slump, and the agenda is dominated by talks and discussions about what kind of future companies in the region have.
Amjad Bseisu, chief executive of EnQuest, one of the independent operators in the North Sea, said: “It is important that government and regulators understand that if you lose one company, that will have an impact on the others because of infrastructure costs.”
Mr Samuel’s report highlighted areas where such co-operation is now taking place, such as the Theddlethorpe gas terminal in Lincolnshire, and the Sullom Voe terminal on Shetland.
It also shows how companies can become more efficient by looking carefully at every aspect of the way they do business. One company called Nexen, for example, managed to improve its employee output by 30 per cent in part by putting staff on a shift system to make sure there were fewer times when large parts of the workforce were taking a break.
But the report added: “While some examples of good practice exist, progress has been limited and a more fundamental shift is required.”
32 Comments on "North Sea oil at ‘serious risk’ of shutdown"
forbin on Tue, 8th Sep 2015 7:53 am
and some here think depletion means nothing and oil is endless
go figure
export land in progress …
Forbin
idontknowmyself on Tue, 8th Sep 2015 8:12 am
Look like the begining of the supply chain, or if you prefer the natural extraction part of the supply chain is shutting down. Another example is copper.
Copper prices may get a break as Glencore suspends two big mines
http://www.marketwatch.com/story/copper-prices-may-get-a-break-as-glencore-suspends-two-big-mines-2015-09-07
Plantagenet on Tue, 8th Sep 2015 10:31 am
Lucky thing Scotland did’t win independence. The Scottish plan to fund new social programs with oil money would’ve been a disaster.
Boat on Tue, 8th Sep 2015 10:48 am
forbin,
some here think depletion means nothing and oil is endless
Who thinks that.
rockman on Tue, 8th Sep 2015 11:19 am
“But he says that joint arrangements — for example where one oil producer without enough gas to power a turbine could share the gas from a rival with a glut of gas — were difficult to agree between companies competing against each other.” Baffles me: how does he expect the NG to get from where it is to where it isn’t? And once a field goes into production there really no competition between companies: they own what they own. Or does he think a company would spend the $millions to lay the pipeline to connect two fields. The NS pipelines are designed to move NG from the fields to the shore…not to each other. There might be some regulatory aspects that could be adjusted but basically if a field becomes non-commercial it’s, well, non-commercial. I suspect the only meaningful change might be for the Brit govt to reduce the royalty to keep a field at a positive cash flow. The public probably wouldn’t like that idea. But I suspect they would dislike even more replacing their NG with imports from Norway.
GregT on Tue, 8th Sep 2015 12:30 pm
What you said yesterday Boat:
“Humans will never stop burning fossil fuels. Period. During and after climate change. I thought everybody knew this.”
Speculawyer on Tue, 8th Sep 2015 12:59 pm
At current prices, they’ll certainly slow down drilling. But when prices go back up, they’ll be back.
Boat on Tue, 8th Sep 2015 1:10 pm
GregT
What you said yesterday Boat:
“Humans will never stop burning fossil fuels. Period. During and after climate change. I thought everybody knew this.”
Yes?
Brent on Tue, 8th Sep 2015 1:11 pm
When prices go back up their will not be an economy to buy oil.
GregT on Tue, 8th Sep 2015 1:11 pm
some here think depletion means nothing and oil is endless
Who thinks that.
penury on Tue, 8th Sep 2015 1:14 pm
“At current prices, they’ll certainly slow down drilling. But when prices go back up, they’ll be back.” This certainly is the dream. However, whee will the funds come from to re=open closed wells? Where will the money come from to drill new wells? As you all know I am all about the money, and supplies of free money for well drilling appear to be disappearing.
GregT on Tue, 8th Sep 2015 1:18 pm
“When prices go back up their will not be an economy to buy oil.”
This is what the eCONomists are ignoring. The economy runs on oil, and oil has no substitute.
It isn’t the volume of oil that matters, it is the cost to produce that oil, and what the economy can afford. Our economies continue to stagnate even with oil at $40/bbl.
Boat on Tue, 8th Sep 2015 1:22 pm
GregT,
That was a response to forbin. I have never read anybody post that oil depletion isn’t real and we have an endless supply. You doomers sometimes claim we think that but as usual ya’ll twist the truth.
I repeat again, the discussion should be about the rate of depletion and how much oil is left. The effects of climate change and it’s effects. But you will have to develop a memory of what is said by who instead of group think.
GregT on Tue, 8th Sep 2015 2:16 pm
Boat,
Which part of “Humans will never stop burning fossil fuels. Period”, in any way supports ‘I have never read anybody post that oil depletion isn’t real and we have an endless supply’?
Shelly on Tue, 8th Sep 2015 2:23 pm
Every thing in the World Economy is affected by Oil. Oil employees so many people not just Oil Workers. Anyone who says that oil prices so cheap is good must not be saving money in a 401K or any type of retirement fund, because Oil Prices are affecting the markets big time.
GregT on Tue, 8th Sep 2015 2:23 pm
” the discussion should be about the rate of depletion and how much oil is left.”
The discussion should be about cost to produce, and affordability Boat. It matters little how much oil is left, if we can’t afford to get it out of the ground. Again, the eCONomists are focussed on supply and demand. We can all demand that our economies continue growing as they have, that does not mean that they will continue to do so. That would require abundant, affordable energy.
Kenz300 on Tue, 8th Sep 2015 2:52 pm
Who is going to pay to close up and make safe all the capped wells around the world.
Oil companies need to seal up and make safe their old production sources rather than abandon them.
We see what the extraction industry did with the mines in the western US. They did not clean up the mess they made and just left it for the taxpayers to deal with.
The extraction industry takes the money and then runs away from the clean up.
Boat on Tue, 8th Sep 2015 4:13 pm
GregT
Affordability for who. The Ethiopians who have 6 cars per 1,000 people. Or you or the billionaire who has over six cars per family member.
As long as there is 1 rich human and a car, there will be gas.
penury on Tue, 8th Sep 2015 4:50 pm
Boat, because I am bored I would like to comment on your last entry.”As long as there is 1 rich human and a car, there will be gas.” That will be some damned expensive gas. We can all agree that as long as there is gas, there will be people to buy it. It is not true that as long as some people have money there will be gas. Try using reason. As the numbers of consumers shrinks, the cost of production does not shrink to match. I understand your agenda but reality needs to be observed.
Makati1 on Tue, 8th Sep 2015 7:49 pm
penury, Boat does not seem to think things through. Gasoline requires a well to provide the petroleum, a refinery to refine it into gasoline. Hundreds of personnel to man all of the steps in the process, Pipelines/trucks to get it to market and a place to sell it.
Then there are the makers of the well machinery and piping that will need to be replaced periodically, the trucks to move those supplies, the energy to refine the oil, the energy to move the oil and then the products and to house, feed, clothes the humans involved in all of those steps.
We could go back even further in the chain and look at the mines, refineries, etc that provide the materials for the above mentioned items.
He may not understand EROEI, but reality does and we are fast approaching that steel wall.
GregT on Tue, 8th Sep 2015 10:43 pm
Boat,
“Affordability for who.”
Affordabiltiy for the economy that you rely on to feed, clothe, and house you. Affordability for the debt based ponzi scheme that you call money.
You are attempting to solve complex problems with linear thinking Boat.
I especially liked this one:
“As long as there is 1 rich human and a car, there will be gas.”
As long as enough people are still gainfully employed, with food, water, clothing and shelter, there will still be some kind of infrastructure left for your “1 rich human and a car” to drive on. And that “1 rich human and a car” better have bullet proof glass and an advanced weapons system on board.
Ralph on Wed, 9th Sep 2015 6:14 am
20 years ago I was in a remote Himalayan village, 3000ft higher than the nearest road. The village had one tap, one solar panel powered lamp, and diesel powered mill, but no diesel.
I had a copy of ‘India Today’ – an economics magazine I bought in Delhi the week before.
The smartest kid in school was reading the magazine and pointed to an advert for a Mercedes Benz limousine. He said, ‘When I am rich I am going to buy one of those’.
OFT on Wed, 9th Sep 2015 7:04 am
Rockman,
Whilst I don’t know the economics of building new NG inter-platform pipelines, but I have read before about the more general issue of needing to share surplus power between platforms. This related to the non-ecomonic cost required to connect platforms to the mainland’s electric grid, to supply power to end-of-life of-shore assets, which were now dependant upon substantial energy inputs for maintaining pressure in the depleting fields.
If that power can be supplied by a nearby platform with surplus to offer( via local gas power plants, and short electric grids etc) then the field can continue.
To a lesser extent cost savings could be made by sharing & coordinating logistics (supplies and crew rotations) and even drilling programmes, if this is not already being done.
The North Sea (UK sector) has had some tax breaks recently and there is now clarification on the end-of-life financial responsibilities for removing old infrastructure, which helps in long term planning. However, it is true that many of these NSea assets are only viable as long as several fields produce together – and that new satellite fields are brought on stream soon.
rockman on Wed, 9th Sep 2015 3:08 pm
OFT – I’m by no means an expert on N Sea logistics but I’ve never seen even one offshore facility anywhere in the world powered by onshore electrical service. The problem with wells near the end of life is that so little value is left it’s very difficult to maintain just the fixed costs let alone invest significantly in large capex projects as you’re describing. All I can do is make a wild ass guess but with the drop in oil prices there are probably thousands of wells globally that no longer produce positive cash flow.
But I can also assure you that some operators are losing $thousands per month…even tens of thousands per month because they don’t want to spend the monies required to plug offshore wells and decommission platforms. There was such a situation offshore La about 10 years ago. The cost to plug the 10 wells and decommission the platform was about $10 million. The downside to waiting: before they got rid of that platform and the wells a hurricane toppled the entire facility over. The new cost to remove the platform and plug the wells: $92 million.
apneaman on Wed, 9th Sep 2015 4:01 pm
Energy job cuts approaching 200,000 worldwide
http://fuelfix.com/blog/2015/09/08/energy-job-cuts-approaching-200000-worldwide/#33909101=0
apneaman on Wed, 9th Sep 2015 4:26 pm
Boat said,
“Humans will never stop burning fossil fuels. Period. During and after climate change. I thought everybody knew this.”
Congrats boat you’ve just discovered one of the cornerstones of dooming. Except there is not going to be an “after” for apes as it will be millions of years before the climate retains the type of stability we have seen for the last 10-12 thousand years and the real nasty stuff is coming up quick. The current mass extinction is mostly independent of AGW and then there is ocean acidification too. It’s all overshoot boat and we are just waiting on inertia and lag time. Could not stop it if we tried.
Makati1 on Wed, 9th Sep 2015 7:02 pm
Ap, Boat doesn’t seem to grasp the timelines of climate change. There is no guarantee that the time after will be anything like we know and probably will not be anything humans could survive even. Not that there will be any humans left when the reset happens, million of years in the future.
Perhaps he should watch this and see the time lines of past climate changes?
https://www.youtube.com/watch?v=RQm6N60bneo
“The History of Earth” 1 1/2 hours by National Geographic. A very good summary of our history, to date.
Boat on Wed, 9th Sep 2015 7:52 pm
Mak,
You just choose to remember what I type. I just say there that at the pace the world is dealing with it will take decades. Just a fact. Now if all the world leaders followed apemans links maybe they would speed up the process. And throw him in jail for wanting to murder the Canadian middle class.
GregT on Wed, 9th Sep 2015 8:09 pm
Boat,
Climate change is happening much faster than the models predicted, and it is not something that humans can stop. If/when tipping points are reached, and a runaway event is triggered, we could find ourselves in extremely dire circumstances within years. Not decades. If the world leaders followed Apnea’s links, maybe they might actually pay attention to what is occurring, instead of stepping on the gas pedal. It isn’t Apnea that is killing the middle class, not only in Canada, but the US as well, it is the Bankers, and their “world leader” lapdogs.
Makati1 on Wed, 9th Sep 2015 11:49 pm
Boat all of the ‘middle classes’ are under attack by the elite banksters. Not just Canada. The US is trying to destroy the EU middle class as we speak and also the Us and Canadian ones. The Japanese and Australian ones are already toast. There will be no ‘middle class’ in a few years. Only the serfs and the masters.
“Record shattering 94 Million Americans not in the labor force: The army of non-working Americans continues to grow.”
“Where the elderly are still working, whether by choice or necessity”
“How Neocons Destabilized Europe”
“Refugee Crisis: Where Are All These People Coming from and Why? (EU)”
“North Sea loses 5,500 jobs in oil market downturn – regulator”
“Canada and Australia feel the squeeze in wake of Chinese economic slowdown”
“A very cold Sydney winter inflates energy bills and sparks disputes ”
“EU throws lifeline to farmers as protests bring Brussels to a standstill”
“The Social Security disability fund is disabled”
“Chart Of The Day: Homeownership Rate Plunges To 1967 Level (US)”
“698K Native-Born Americans Lost Their Job In August: Why This Suddenly Is The Most Important Jobs Chart”
“Macy’s to close up to 40 stores in early 2016”
Etc. today in http://ricefarmer.blogspot.fr/
rockman on Thu, 10th Sep 2015 7:36 am
Around 140 fields could cease production in the UK Continental Shelf over the next five years, resulting in a ramp-up of decommissioning activity and spend, according to a new report from Wood Mackenzie. The research firm stated that a high oil price has enabled operators to extend field life and delay decommissioning on the UKCS, but warned that the current low oil price will lead to a change in behavior. Wood Mackenzie forecasts that around 140 UKCS fields will cease over the next five years, even if oil prices return to $85 per barrel. Fiona Legate, UK upstream research analyst for Wood Mackenzie, commented in a Wood Mackenzie statement: “Seventeen fields are expected to be sanctioned over the next five years. In the current price environment there is a risk projects may be cancelled or delayed. We could start to see a shift away from work in new developments to decommissioning projects…We expect around £54 billion [$82 billion]…will be spent on decommissioning on the UKCS and anticipate it to be completed in the early 2060s. Decommissioning spend is expected to increase by over 50 percent by 2019 and will overtake development spend in the same year.”
Nony on Thu, 10th Sep 2015 8:45 am
Get yer costs down, you unionized goldplating offshore types. Compete or die.