Examination of Witnesses (Question Numbers
97-99)
PROFESSOR ALEXANDER
KEMP
19 MARCH 2009
Q97 Chairman: Good morning, Professor
Kemp. It is very good to see you. Thank you very much for coming
along to our session this morning. You will be aware of the Committee's
remit and what we are looking at in relation to the production
of oil and gas in the North Sea and associated issues around the
industry, the fiscal regime, environmental controls, skills, all
of those kinds of issues. Can I start by saying, Professor Kemp,
oil and gas has been a very important contributor to the UK economy.
Production is falling, as we know, and it is a finite resource,
but there are clearly undeveloped reserves in both the North Sea
and west of Shetland. I was quite interested to see that the estimates
of those reserves vary wildly, I would say. I have seen a DECC
figure of around about 25 billion barrels of oil equivalent and
some of the figures we have seen range from lows of 11 billion
to highs of 37 billion barrels. Do we have any kind of clear idea
of what reserves we have left which are exploitable?
Professor Kemp: The range of figures
you have mentioned is consistent with the published figures from
the Department of Energy and Climate Change. Their central estimate
is about 20-21 billion barrels of oil equivalent. For what we
call the sanctioned fields we are reasonably confident what could
be producible for the probable and possible. The certainty increases
with age but there are discoveries although there are doubts whether
they will all be economically recoverable. For the yet-to-find,
which is a big element in the optimistic total of over 30, 35,
there are clearly a lot of differences of opinion on what might
be discovered and that has always been the case. We do a lot of
economic modelling. We have our own independent views on what
could be producible using our economic modelling, which is different
from what reserves are actually there but could be extremely remote
or high cost. All being well, that is with a higher price than
we have at the moment and a receptive regulatory and fiscal regime,
we think that we could certainly recover over 20 billion barrels
of oil equivalent. Our independent modelling shows that, and it
could be 23 or 24 in the long period up to 2040.
Q98 Chairman: Some of these fields
are deepwater and there are the west of Shetland fields. You mentioned
the fiscal regimes as well as the price of oil, which are clearly
drivers in terms of whether or not these reserves are exploited.
Does the industry actually have the equipment and expertise to
develop these fields? Is it just a question of the regulatory
and fiscal regimes?
Professor Kemp: Broadly speaking,
the technologies have evolved extremely well since the late 1960s,
so by and large the technologies are available or could be adapted
to deal with even the very difficult situations, say, in the Atlantic
Ocean. I am a petroleum economist and we tend to see the difficulties
from the economic side as well. It is worth emphasising that of
the remaining potential of 20-25 billion barrels of oil equivalent,
the average size at the moment is about 20 million barrels of
oil equivalent with the most likely being less than that because,
to use a little technical language, the distribution of fields
left by mother nature is lognormal so there will be a lot of small
ones below 20, 15 or 10 In the 1970s the average size of a field
was over 500, so this is what makes the eventual recovery from
an economist's point of view a little difficult and why we have
a big range. We have got a lot of very, very small fields, some
moderately sized ones and the occasional big one and that makes
the economics difficult even with technologies that could physically
do the job.
Q99 Sir Robert Smith: One of the
things you mentioned there was that the size of the new fields
is much smaller, so in terms of the economics of production is
it quite important to understand that they do not get produced
by putting a big platform on a little tiny field, they require
the existing processing and infrastructure to be available? How
do you assess the quality of the regime for new entrants finding
small fields actually being able to access that infrastructure?
Professor Kemp: First of all,
to develop a lot of small fields you would hope that it is not
far from existing infrastructure. If it is not far from existing
infrastructure then typically the most economical way to develop
the field would be by a sub-sea system which would be tied back
to an existing big platform. One of the difficulties is not all
fields are in that happy position, some are what we call stranded,
a long, long way away from any infrastructure. Examples would
be some of the gas discoveries in the west of Shetland region.
Access to infrastructure is clearly important and the majority
of new developments now does use existing infrastructure. One
of the issues to expedite the speedy progress in developing new
fields is to ensure that access to infrastructure, which involves
negotiation between the user field and the asset owner, takes
place in an expeditious manner because delays are the worst thing.
In our modelling of the future of the North Sea we see the need
to get a large number of fields coming on every year, up to 20
fields per year is just possible all being well. If that slips
because of delays, for whatever reason, then the production profile
goes down more sharply.
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