Examination of Witnesses (Question Numbers
120-125)
PROFESSOR ALEXANDER
KEMP
19 MARCH 2009
Q120 Sir Robert Smith: Just two quick
questions on west of Shetland. One is what sort of contribution
would it be making to our security of supply, getting more gas
from our fields rather than having to import from abroad?
Professor Kemp: Do you mind if
I look at my research paper on that? We produced a paper on the
contributions of the different regions a little while ago. Take
the case where in our modelling we recovered by two or three fields
20 billion barrels of oil equivalent, so on west of Shetland in
our modelling 3.4 out of 20 from now to 2035.
Q121 Sir Robert Smith: So quite a
substantial bonus for the country.
Professor Kemp: Yes. That gives
you a feel for what the potential would be. That is taking a high
price case. On the low price case a lot of these west of Shetland
contributions are not viable. That was at an $80 price case, 3.4
out of 20 billion.
Q122 Sir Robert Smith: It is meant
to be a hard-nosed financial business making judgments, but confidence
and psychology seem to play a part in the instincts of the industry.
How much would unlocking the west of Shetland be a boost to the
morale of the province of the UKCS in terms of the supply chain,
the critical mass, the idea that there is still something bigger
to play for?
Professor Kemp: The way I put
it is this: if we did a significant development going on the gas
side with a reasonably big pipeline, that would be a great stimulus
to all the small fields round about and even exploration round
about because the knowledge that there was a joint pipeline there
would make a very big psychological difference to how people would
view acreage, prospects and everything. It would have a very strong
knock-on effect. That is certainly a reason why from the national
interest point of view some special consideration might be given
to west of Shetland. On my 3.4 out of 20 to 2035, I would just
like to add one point. That is on the assumption of past trends
in exploration success. If the Department of Energy is right in
that there could be a lot more, it is just that we have not been
looking in the right places, then that 3.4 could become much bigger.
Q123 Mr Weir: You have talked about
the cluster development and this common pipeline, but, going back
to our earlier discussion about common carriers and access to
infrastructure, what needs to be done to develop that common pipeline
and to ensure that everyone developing or looking west of Shetland
can get access to that should they be successful?
Professor Kemp: A common carrier
could be done by investors themselves acting on their own and
over-sizing it from the first fields if they were reasonably confident
that later on more gas was going to be coming in from new ones.
They are very cautious about that and that is quite risky and
involves a lot of upfront money. In the past we had lots of discussion
about common carrier gas pipelines in the North Sea that were
studied at enormous length and eventually did not go ahead. The
one in the North Sea did not go ahead because the banks would
not finance a pipeline unless there was pretty well guaranteed
large throughput from a very big field and that was not going
to be the case, so the second North Sea gas pipeline did not emerge
under private sector arrangements. If you want to think more radically
then there could be something like a government guarantee to enable
the banks to take a very generous view of things. That kind of
thing is possible but brings in the question of State Aid and
all of that and that would be quite complex.
Q124 Mr Weir: Given we are hopefully
opening up large new fields west of Shetland but we do not know
yet how much oil and gas is in there, as I understand it, it is
mostly the big companies that are currently looking there. Independents
told us few of them were involved west of Shetland at the moment.
If we are talking about a hub and common structure, surely it
is essential that it is made at a size that will allow for future
development otherwise you are going to get a situation where you
are doubling your infrastructure causing extra costs in the long
run. I appreciate what you are saying, but is there anything the
Government can do other than giving them the money, which they
are not likely to do, that would allow this to go ahead as a common
resource, if you like, for developing the fields in the future?
Professor Kemp: There are things
that the Government could do. For example, if you want to be radical,
they could guarantee bank loans relating to the construction of
a pipeline, but that would involve a lot of heart searching and
there would be questions of State Aid under the EU rules and these
kinds of things to be clarified.
Q125 Mr Weir: One final point on
west of Shetland. We had the RSPB give us evidence raising environmental
concerns about some of the activities west of Shetland and also
calling for areas to be closed to exploration that are important
for marine life. What is the industry's view on this point?
Professor Kemp: I think the next
witnesses will tell you that. My view is that when it comes to
licensing the environmental obligations for licensees are really
quite strong. Studies have to be done before a licence is given
out by DECC under the EU Habitats Directive and when a company
makes its proposal it has to have environmental statements on
how its activities would interact with marine life, porpoises,
whales and all that kind of thing, and how the problems that might
arise would be dealt with. My view is that we have quite strong
legislation in place to deal with that as things stand and it
has actually been strengthened over the last few years.
Chairman: Thank you very much, Professor,
that is very helpful and interesting. We very much appreciate
you taking the time to come here and for the very thorough and
detailed replies to our questions. Thank you very much.
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