|
Supplementary memorandum submitted by the Department of Energy and Climate Change (DECC) (UKOG 16B)
Performance against the PILOT Targets
1. PILOT is a joint programme involving the Government and the UK oil & gas Industry - including operators, contractors, suppliers and trade unions - aiming to secure the long-term future of the Industry in the UK. It is the successor to the Oil & Gas Industry Task Force (OGITF) which was established in late 1998 in recognition of the dramatic fall in oil prices, the maturing of the UKCS and the urgent need to reduce the cost base of activity in the basin. The results and recommendations of the OGITF were detailed in its report Template for Change[1] launched in September 1999. 2. OGITF's overall objective was to create a climate for the UKCS to retain its position as a pre-eminent active centre of oil & gas exploration, development and production and to keep the UK contracting and supplies industry at the leading edge in terms of overall competitiveness. This objective was quantified into a 'Vision for 2010'. OGITF ran through to 1999, instituting several new industry bodies to enable improvements in the industry's competitiveness and capabilities. PILOT was established on 1 January 2000 and monitors the progress being made towards achieving the Vision and identifies new areas of activity to assist this progress. It also provides a forum to discuss the condition of the Industry and to build alignment about the appropriate direction it should take. 3. The Vision for 2010 was: The UK oil and gas industry and Government working in partnership to deliver quicker, smarter and sustainable energy solutions for the new century. A vital UK Continental Shelf is maintained as the UK is universally recognised as a world centre for the global business.
4. To make this vision a practical reality, specific aspirational targets were set for the year 2010: · investment sustained at £3 billion per annum from UKCS activity · production at three million barrels of oil equivalent per day · prolonged self-sufficiency in oil and gas · a 50% increase in exports in oil and gas supplies products [by 2005] · £1 billion additional value from new businesses · supporting up to 100,000 jobs more than there otherwise would have been 5. The following additional target was added in 2002: · In 2010, the UK is the safest place to work in the worldwide oil and gas industry 6. Progress to date against these targets is assessed below. Investment sustained at £3 billion per annum from UKCS activity
As shown in the chart below, UKCS capital expenditure since 2000 has comfortably exceeded £3 billion per annum: Source: https://www.og.berr.gov.uk/information/bb_updates/appendices/Appendix7.htm.
A survey of operators' intentions to invest in UKCS oil and gas production was conducted in autumn 2008.[2] The survey indicated total development capital expenditure (i.e. excluding expenditure on exploration, appraisal and decommissioning) relating to existing fields and significant discoveries of around £5.0 billion in 2008, slightly lower than the outturn total of £5.3 billion for development capital expenditure in 2007. As illustrated in the chart below, the reported survey data suggest that (in 2008 prices) expenditure might rise to around £6 billion in both 2009 and 2010 but great uncertainty applies to these figures which seem unlikely to be seen in practice. The survey was conducted during a period when oil prices were falling from a recent historically level which had been responsible for significant input cost inflation. Continued lower product prices combined with only a slow fall in input cost levels and funding difficulties caused by lower cash flow and the "credit crunch" lie behind recent reductions in many companies' investment plans which are not reflected in the reported data. It seems certain that development capital expenditure in 2009 will fall well short of £5 billion and might actually fall below £4 billion in 2010. However, it seems likely that the PILOT target will be comfortably exceeded. Production at three million barrels of oil equivalent per day (boepd)
The chart below compares this target, and the interim target set in 2001 for the year 2005, with actual production through to 2007 and the Department's latest production forecasts for the period 2008-2013. It now seems certain that total oil and gas production will not be maintained to reach the 2010 PILOT "Vision" production target of 3 million boepd. The current projections imply total production in 2010 of 2.4 mboepd (compared with 2.8 mboepd in 2007). Nevertheless, these aspirational targets were useful in providing a focus for many of the initiatives which have borne fruit in the last decade. The aspirational nature of the vision target for production in 2010 is emphasised by the fact that the supporting analysis against which it was set indicated production declining to a maximum of 2.2 million boepd. Source: https://www.og.berr.gov.uk/information/bb_updates/chapters/Section4_17.htm. Prolonged self-sufficiency in oil and gas
The chart below shows actual and currently projected UKCS oil and gas production and actual and projected UK demand for oil and gas. It shows that the UK is expected to become increasingly reliant on imported oil and gas. The dotted green line measures achievement against the PILOT "Vision" target of prolonged self-sufficiency in oil and gas. This was maintained until 2004 against a target of 2010. Source: https://www.og.berr.gov.uk/information/bb_updates/chapters/Section4_17.htm.
A 50% increase in exports in oil and gas supplies products [by 2005]
This was the first target to expire and was exceeded by a considerable margin. The UK is now recognised as a global hub for oil and gas expertise (especially in the sub-sea sector) with the global market set to grow at pace into the future. A recent report issued by UKTI projected potential growth from a current figure of around £8 billion to £30 billion by 2030.
£1 billion additional value from new businesses
The renewables, and particularly offshore wind, market will predominantly be serviced by the oil and gas supply chain and generate a substantial diversification opportunity. The restricting factor being capacity and the export market grows for core oil and gas services.
Supporting up to 100,000 jobs more than there otherwise would have been
Against a background of sustained higher expenditure, notably capital expenditure but also expenditure on exploration & appraisal, operations and decommissioning, employment in and supported by the UK upstream oil industry has risen in recent years. Even if expenditure falls this year and next, employment is likely to be significantly higher than it would have been without the results of the sustained co‑operation between Government and industry through PILOT over the past decade. In 2010, the UK is the safest place to work in the worldwide oil and gas industry
While significant improvements have been made over the past 9 years with lost time incidents more than halved there is still more to do as we have now reached a plateau in the UKCS and are still behind Australia and Asia on safety. The industry has a dedicated safety initiative in "Step Change" which continually monitors progress and sets even higher standards in its quest to become the best in the world. The charts below come from Oil & Gas UK's 2007 Sustainability Report (at http://www.oilandgas.org.uk/issues/sustainability/2007/main/social/social-5.cfm):
Lost Time Injury Frequency - UK to be the Safest Place to Work in the World-wide Oil and Gas Industry by 2010 Lost Time Injury Frequency (LTIF) - 2006 European Comparison (includes fatalities) Fatal Accident Rate (FAR) - 2006 Regional Comparison DECC, 26 March 2009
May 2009
1. Available from http://www.pilottaskforce.co.uk/docs/aboutpilot/atemplateforchange.pdf. 2. See "UKCS capital expenditure survey 2008" (Energy Trends, March 2009; http://www.berr.gov.uk/files/file50677.pdf). |