7 Impacts of a Moratorium
Impact of the US Moratorium
128. The US observed a moratorium on any deepwater
drilling from the time of the Deepwater Horizon incident in April
until 12 October 2010. There were 33 deepwater drilling platforms
in the Gulf of Mexico on which work halted as result. As a consequence,
on 8 July 2010, the Texas based deepwater drilling contractor
Diamond Offshore announced that its Ocean Endeavour drilling platforms—capable
of operating in over 2,400m of water—would be leaving the
Gulf of Mexico and immediately moving to Egyptian waters. The
Ocean Endeavour had been leased to Devon Energy Corporation, and
had been drilling in the same region of the Gulf of Mexico as
the Deepwater Horizon. On 11 July 2010 Diamond announced that
it would be moving a second platform out of the Gulf of Mexico
to waters off the Republic of Congo. Mr Cohagan of Chevron UK
told us: "We have to pay for the drill ships whether they
are working or not [...] If we can't drill here it will be necessary
for us to find some place [else] in the world".[196]
129. Devon tried to cite the deepwater drilling ban
to get out of its contracts to lease the Diamond platform, but
Diamond still took $31 million in early termination fees. Murphy
Oil Corp and Cobalt Energy Inc also sought to annul contracts
with Diamond because of the moratorium, but Diamond rejected their
force majeure claims. Force majeure is a common
clause in contracts that essentially frees both parties from liability
or obligation when an extraordinary event or circumstance beyond
the control of the parties occurs. Anadarko, which owned a 25%
interest in the Macondo well, notified four out of its three drilling
contractors in the Gulf of Mexico of its intent to use force
majeure to break their contracts, although Noble (which owns
one of the rigs) disputed that the moratorium constituted an event
that would free both parties from their contract.
Evidence on a UK Moratorium
130. ClientEarth, Platform, Greenpeace, the Marine
Conservation Society and Caroline Lucas MP gave evidence to us
calling explicitly for a moratorium on new deepwater drilling
in the UKCS.[197] ClientEarth
argued that a moratorium was necessary until "a comprehensive
new regulatory package [comes into force that] introduces new
legislation to fill the dangerous voids in the current regime".[198]
Transocean, Chevron, DECC, DONG and British Gas (BG Group) argued
that a ban would be unwarranted. [199]
Chevron UK told us that a "moratorium on deep water
drilling would have unnecessary and lasting negative impact on
the UK's ability to maximise the value of a vital national resource".[200]
DONG Energy said that a moratorium on deepwater drilling would
"prevent the discovery and extraction of new sources of gas
supply [...] required to mitigate the decline in supply from other
areas of the UK [Continental Shelf]".[201]
131. At a September 2010 meeting of the Oslo and
Paris Conventions for the protection of the marine environment
of the North-East Atlantic (OSPAR) in Norway, a proposal for a
moratorium on deepwater drilling was withdrawn due to strong opposition
during a meeting of ministers, including from the UK.[202]
The EU Commission's calls for a moratorium on deepwater drilling
were eventually voted down by the European Parliament.[203]
132. Production of oil and gas from the North Sea
is in decline. The average size of discoveries on the UK Continental
Shelf in the last 10 years is only around 20 million barrels of
oil equivalent and many of them are gas discoveries. Despite this,
the decline of UK gas production has been much quicker than that
of oil production.[204]
Dr Hayward believed that "there is no doubt that deepwater
will provide an important part of [future oil and gas production]".[205]
133. At the London Oil & Money Conference
on 12 October 2010, the executive director of the International
Energy Agency (IEA), Nobuo Tanaka, said that half of the world's
oil supplies could come from offshore production by 2015, up from
approximately a third today.[206]
A 2009 study from the Society of Petroleum Engineers quantified
the deepwater oil and gas resources world wide as 11.9 billion
tonnes of oil equivalent, or almost 88 billion barrels.[207]
Of this deepwater resource 15% was in Europe, and of that 25%
was located in the UK: 450 million toe (over 3.3 billion barrels),
comprised of 237 million tonnes of oil (1.75 billion barrels),
and 213 million tonnes of gas.[208]
134. Global production of oil in 2009 was 3.8 billion
tonnes (28 billion barrels), while proven reserves stood at 181.7
billion tonnes (1.34 trillion barrels). UK consumption in 2009
was 74.4 million tonnes (almost 550 million barrels). In terms
of global demand the UK deepwater resource is small, amounting
to just over three years of domestic oil consumption. However,
the Economics and Social Research Council point out that under
IEA and EU rules, the UK is committed to sharing available oil
with partners in the event of a major disruption, so West of Shetland
(WoS) oil should be seen as a contribution to collective security
as it cannot be reserved for the UK.208 DECC figures
estimate that the 3-3.5 billion barrels of deepwater oil and gas
resource (including both WoS and the less well explored West of
Scotland) account for 15-17.5% of UK total resources. However,
they note that this resource estimate includes 1 billion barrels
of highly uncertain resource from the West of Scotland area. [209]
Mr Cheshire of DONG Energy told us that a moratorium on new deepwater
drilling in the UK would lead to, "a very significant delay
on the ability to deliver projects".[210]
135. The main prospective oil and gas producing areas
in deepwater within the UK Continental Shelf (UKCS) are considered
to be in areas West of Shetland (WoS). The area West of Scotland
(north of the Outer Hebrides) may also contain substantial oil
and gas resources, but is yet to be fully explored. Mr Webb of
Oil and Gas UK told us:
[...] industry is going to have to invest something
like £60 billion over the next 10 years or so [...] if we
want to keep rigs drilling here in the UKCS then what is needed
most of all is the right investment climate for that to happen.[211]
136. The West of Shetland area is estimated to hold
around 20% of the UK's remaining oil and gas reserves, 3.5-4.5
billion barrels of oil equivalent. This includes about 1 billion
boe of gas, representing around 17% of the remaining UK gas reserves,
the majority of which lies in deepwater. The remaining WoS oil
potential, 3 billion barrels, is split approximately 50:50 between
deep and shallow water.[212]
Dr Wills told us that: "Jobs and contracts in the terminals
are worth £50 million to £60 million a year to a local
community of 22,000 people".[213]
137. Production from the three fields West of Shetland
(BP's Foinhaven—400-600m, Schiehallion—350-450m and
Clair—140m) represents about 9% of total oil production
from the UKCS (114,000 barrels per day). Total's £2.5 billion
investment to develop the Laggan-Tormore fields will result in
the production of 30 billion cubic metres of gas—the largest
gas field development in over ten years. The infrastructure put
in place to develop Laggan-Tormore will secure the installation
of the first major gas pipeline from the area to the British mainland,
opening up the basin for further developments. Chevron is exploring
the Rosebank-Lochnagar fields in 1,115m of water.[214]
138. We conclude
that a moratorium on offshore drilling in the UK Continental Shelf
would cause drilling rigs and expertise to migrate to other parts
of the globe. A moratorium on deepwater drilling would decrease
the UK's security of supply and increase the UK's reliance upon
imports of oil and gas. A moratorium could also harm the economies
of communities in Scotland who rely upon the UK offshore oil and
gas industry as well as the wider British economy to which the
industry makes a major contribution. There is insufficient evidence
of danger to support such a moratorium. We conclude that there
should not be a moratorium on deepwater drilling in the UK Continental
Shelf.
196 Q 264 (Cohagan) Back
197
Ev 595, Ev 598, Ev 599, Ev 630, Ev 633 Back
198
Ev 595 Back
199
Ev 59, Ev 591, Ev 596, Ev 631, Ev 592 Back
200
Ev 591 Back
201
Ev 632 Back
202
"The deepwater moratorium issue", International Association
of Oil and Gas Producers-Highlights, October 2010 Back
203
"The deepwater moratorium issue", International Association
of Oil and Gas Producers-Highlights, October 2010 Back
204
Ev 77 Back
205
Q 176 Back
206
"Half the world's oil production could come from offshore
production by 2015", Reuters, 12 October 2010 Back
207
Ev w6 Back
208
Ev w6 Back
209
Ev 596 Back
210
Q 264 (Cheshire) Back
211
Qq 15 and 81 Back
212
Ev 596 Back
213
Q 222 Back
214
Ev 63 Back
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