Memorandum submitted by Oil and Gas UK
1. EXECUTIVE
SUMMARY
1.1 The UK regulatory regime is robust and
fit for purpose. The offshore oil and gas industry in the UK is
controlled by comprehensive, rigorous environmental and safety
regulation, enforced by competent regulators.
1.2 The UK safety regime is fundamentally
different to that in the USA with a clear separation in regulatory
function between licensing (Department of Energy and Climate Change)
and safety (Health & Safety Executive). A goal setting rather
than prescriptive philosophy is delivered through the safety case
to ensure that major accident risks are evaluated and controlled.
The safety case regime obliges the UK industry to review its existing
arrangements in the light of new information, eg the Macondo incident.
1.3 Further restrictions on drilling in
the UK would be unwarranted and, in holding back development in
offshore areas, would be deeply damaging to the national economy,
hitting investment, jobs, security of primary energy supply and
Treasury revenues.
1.4 We believe the risks involved in drilling
on the UK Continental Shelf (including deeper water) are well
understood; there are effective multiple barriers in place; a
high degree of workforce engagement; and a strong safety culture.
1.5 However, the UK offshore oil and gas
industry is not complacent. It is working with its regulators
and the trade unions through the newly formed Oil Spill Prevention
and Response Advisory Group (OSPRAG) to review current practices
and procedures. It is also liaising with industry bodies worldwide
and will implement relevant lessons learned from the Macondo incident.
1.6 The UK will be dependent on oil and
gas as its main source of primary energy for decades to come.
Any loss of indigenous UK production would result in more imports
from potentially less stringently controlled producing regions
of the world.
1.7 Additional EU level regulation would
add no additional value and has the potential to complicate and
confuse.
2. OIL &
GAS UK
Oil & Gas UK is the leading representative
body for the UK offshore oil and gas industry. It has over 100
members comprising the major multi-national oil and gas companies,
smaller specialist producers and explorers as well as large contractors
and SME suppliers active across the UKCS.
3. KEY FACTS
ABOUT THE
UK OIL AND
GAS INDUSTRY
In 2009, this industry:
3.1 satisfied some two thirds of UK primary energy
requirements;
3.2 was the largest investor and the largest
contributor to the UK national gross value added (GVA) among the
industrial sectors of the economy (total expenditure was £12.3
billion);
3.3 supported almost half a million high value,
highly skilled jobs across the UK;
3.4 contributed around 20% of the UK's corporation
tax bill (£6.3 billion in tax revenues rising to an estimated
£9.4 billion in 2010-11);
3.5 boasted a world leading supply chain, which
not only services the UKCS but also exports oilfield goods and
services across the world worth £5 billion per annum;
3.6 generated further revenues from the supply
chain through corporation and payroll taxes (an estimated £5-6
billion in 2009).
Please refer to Annex 1 (Oil & Gas UK 2010
Economic Report) for additional facts and figures.
EVIDENCE ADDRESSING
QUESTIONS POSED
4. To what extent would deepwater oil and
gas resources contribute to the UK's security of supply?
There is no agreed definition of deepwater in
the UKCS or worldwide. As technology has evolved over time, it
has allowed the industry to exploit resources in ever deeper waters
with confidence that the risks remain effectively managed.
4.1 The UK's indigenous oil and gas resource,
located essentially offshore, has a crucial role to play in helping
to secure the UK's future energy. Oil and gas will continue to
dominate UK energy supply for many decades to come. Hydrocarbons
currently provide 75% of the country's primary energy. Even upon
full achievement of Government targets for renewable energy (renewable
sources to provide 15% of primary energy in 2020), 70% of our
primary energy in 2020 will still need to be found from oil and
gas. Furthermore, with oil dominating transport needs and gas
for heating, demand will only decline slowly through to 2050.
4.2 The UK's estimated remaining hydrocarbon
resource is up to 24 billion barrels of oil and gas, 10 billion
barrels of which are yet to be discovered. Provided investment
can be held at £5-6 billion per annum, the decline in UK
production could be slowed to a gradual 5% per annum. This means
that the UK could still be producing oil and gas in sufficient
volumes in 2020 to satisfy half of the UK's oil and gas demand.
4.3 DECC data show that circa 2.8 billion
barrels of oil equivalent (boe) of the UK's currently discovered
oil and gas reserves lie in deeper waters. It is estimated that
around 3.3 billion boe of the UK's yet-to-be-found oil and gas
resources will be discovered in these waters.
4.4 The UK industry already safely produces
substantial quantities of oil from these deeper waters and in
2014, it will start producing gas in significant quantities for
the first time, demonstrating the potential of the west of Shetland
basin:
(a) Production from the three existing oil fields
west of Shetland (Foinaven, Schiehallion and Clair) is currently
around 114,000 bpd (barrels per day), representing about 9% of
total oil production from the UKCS.
(b) The £2.5 billion investment to develop
the Laggan-Tormore fields will result in the production of some
30 bcm (billion cubic metres) of gas, plus some oil, from the
largest gas field to be developed in over 10 years.
(c) Furthermore, 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 opportunity for further gas and joint gas and oil development
in the basin. This new pipeline will be built to deliver far greater
volumes of gas than that needed for Laggan-Tormore, providing
sufficient capacity to satisfy up to 8% of UK gas demand.
4.5 Oil & Gas UK estimates that over
the next five years, production from new and incremental projects
west of Shetland could amount to approximately 314 million boe;
a moratorium on deepwater drilling in the UK would, at best, delay
these projects and possibly put a freeze on them altogether. It
would also stifle exploration, which would have a knock-on effect
for future production.
5. Is deep water oil and gas production necessary
during the UK's transition to a low carbon economy?
5.1 All resources, not just those in deeper
water oil and gas production, will be essential for UK security
of energy supply during the transition to a low carbon economy
as this transition will not happen quickly, nor will it be absolute.
We see oil and particularly gas as a key part of any low carbon
economy. See section 4.
5.2 Harnessing the oil and gas potential
of the deeper waters west of Shetland will bring other long-term
economic and social benefits:
(a) Without strong indigenous oil and gas production,
any transition will be more costly and therefore possibly slower
as the UK will have to pay for a much greater proportion of its
oil and gas in imports to meet its energy requirements, with consequential
serious impacts on the nation's balance of trade.
(b) Currently there are almost 20 companies with
interests in the west of Shetland basin and 50 licences. Oil &
Gas UK has identified future projects on nine existing or new
fields in the area awaiting the green light for development. These
interests represent considerable economic potential for the UK.
(c) The substantial investment required for further
exploration and development in the deeper waters west of Shetland
will provide highly skilled, well-paid employment in the UK oil
and gas industry supply chain. It will also create an engine for
the development of new exportable and transferrable technologies.
The further opening up of the North East Atlantic will therefore
allow the industry to continue helping the country to strengthen
its manufacturing and skills base whose output can be exported
and transferred to the benefit of the nation.
(d) Future oil and gas production will earn the
UK Exchequer valuable revenues, and generate taxes from companies
in the busy and successful supply chain, helping to strengthen
the country's finances.
6. What are the hazards and risks of drilling
west of Shetland?
6.1 The UK's goal setting safety regime
requires a systematic approach to the identification of hazards
and through the application of quality engineered solutions and
systems ensures that risks are reduced to as low as reasonably
practicable (ALARP). The approach taken west of Shetland is no
different, albeit some of the hazards may differ.
6.2 What is considered to be deep water
has changed over time. The North Sea, for example, with a water
depth range of approximately 100-700 ft, was considered to be
deep water 30-40 years ago. Depths west of Shetland vary from
approximately 500 ft to 6,000 ft plus.
6.3 Since the start of UKCS operations in
the 1960s, almost 11,000 wells in total have been drilled, of
which around 400 have been west of Shetland. Of all the wells
drilled, 330 were in more than 1,000ft of water; 284 of these
located west of Shetland. The deepest well was in just over 6,000ft
of water, drilled near Rockall in 2001.
6.4 The particular challenges of deepwater
drilling west of Shetland relate primarily to the area's physical
environment and remoteness. The area encounters long Atlantic
swells and heavy seas. Currents are complex and fast; depending
upon the location, they can vary in direction and speed at different
water depths. The weather, especially during winter months, can
be severe and lead to the temporary suspension of operations.
6.5 The above factors make open water operations
west of Shetland complex, necessitating the design and deployment
of sophisticated, specialist equipment.
6.6 Other factors which must be considered
include well depth and the geology of the rock formation, but
these are not unique to the west of Shetland.
6.7 The following section (section 7) describes
the safety and environmental regime for the UK offshore oil and
gas industry, including the process of well design, examination
and independent verification by a competent person. This section
summarises how the risks associated with drilling are managed.
The same procedures apply to the west of Shetland as to any other
region of the UKCS:
(a) Well design: under the Offshore Installations
and Wells (Design and Construction) Regulations 1996, all UK well
operators must ensure that a well is so designed, modified, commissioned,
constructed, equipped, operated, maintained, suspended and abandoned
that:
— So far as is reasonably practicable there
can be no unplanned escape of fluids from the well; and
— Risks to the health and safety of persons
from it or anything in it or in strata to which it is connected,
are as low as reasonably practicable.
(b) Selection of drilling rig: the selection
of the right drilling rig is essential. Dynamically positioned
(DP) rigs are typically used in water depths greater than 1,000ft
and use sophisticated sensors, together with their own thrusters
and propellers, to maintain position and heading. Water depth
and deepwater currents have impacts on all aspects of riser operations
(risers provide the linkage between the top of the wellbore and
the rig). These must be carefully planned for and managed, particularly
in the event of a disconnect.
(c) Primary well control: the first line of defence
is provided by managing the drilling fluids (known as "muds")
injected into the borehole to maintain sufficient downward pressure
in the well. Robust planning, design and execution of the well
are essential, and contingencies must be in place to contain pressure
in the well in the event of the riser being disconnected.
(d) Secondary well control: during drilling operations
an influx of hydrocarbons into the well bore can happen. Primary
well control is re-established by operating the blowout preventer
(BOP), which is a large, mechanical device designed to monitor,
control and, ultimately, seal off the wellhead to bring the well
under control and prevent a blowout. As BOPs are safety-critical,
the UK regulations require that they are regularly inspected,
tested, maintained and independently verified as fit-for-purpose.
(e) Tertiary well control: In the unlikely event
that secondary controls fail, the industry's primary means of
tertiary response is the drilling of a relief well to intersect
the damaged well in order to kill it, and to respond to the environmental
and economic impacts of an oil spill through surface clean-up
operations. Additional enhanced tertiary controls such as those
seen deployed on the Macondo well, are being considered through
OSPRAG's technical review group.
7. To what extent is the existing UK safety
and environmental regulatory regime fit for purpose?
The UK regulatory regime is robust and fit for
purpose. The offshore oil and gas industry in the UK is controlled
by comprehensive, rigorous environmental and safety regulation,
enforced by competent regulators.
7.1 Safety
7.1.1 Following the Cullen Inquiry into
the Piper Alpha disaster in 1988, the offshore safety regime was
revised through a consultative process involving expert representatives
from the industry and workforce. The outcome included a separation
of regulation of operations and safety (now resting with DECC
and HSE respectively) and a suite of offshore-specific regulations
addressing:
(a) Prevention of fire and explosion;
(b) Securing effective emergency response arrangements;
(c) The integrity of offshore installations and
wells;
(d) The requirement for independent competent
checks that safety-critical systems are and remain fit-for-purpose;
(e) Workforce involvement (through safety representatives);
and
(f) A requirement for a safety case for all offshore
installations (including mobile drilling rigs).
7.1.2 The regulatory framework sets objectives
to be achieved (goals) without prescribing how to comply. This
is fundamentally different from the US regime and means that the
precautions to be taken must show that the risks are as low as
reasonably practicable (ALARP). In addition, as new information
or safety-enhancing technology becomes available, the industry
is obliged under the safety case regime to review its existing
arrangements so that risks remain ALARP.
7.1.3 Compliance with the law is based on
conformity with recognised good industry practice, including:
(a) HSE approved codes and guidance;
(b) UK and international standards; and
(c) Guidance agreed by relevant trade bodies.
7.1.4 An HSE accepted safety case is required
for all installations before operating (including drilling) on
the UKCS. For the safety case to be accepted, it needs to demonstrate
that the company management system is adequate to ensure legal
compliance; that there are arrangements in place for auditing
the safety management system; that there has been a detailed and
systematic approach to the identification of all hazards with
the potential to cause a major accident, and that all the major
accident risks have been evaluated and measures taken to control
those risks to as low as reasonably practicable. A blow out is
a recognised major accident hazard.
7.1.5 Specific safeguards for wells:
(a) Well notification system—HSE must be
advised at least 21 days in advance of drilling/well intervention
activities. HSE wells specialists can review the well design and
execution plan, and require amendments if necessary;
(b) The requirement for the well design and construction
to be examined by an independent and competent person (eg experienced
drilling engineer);
(c) Verification by an independent competent
person (eg Lloyds or DNV) of the initial suitability and continuing
good repair and condition of safety-critical equipment involved
in drilling (eg BOP);
(d) Weekly drilling reports sent by operators
to HSE, enabling HSE wells specialists to identify and respond
to changing risks;
(e) Requirements that workers involved in well
operations are suitably informed, instructed, trained and supervised;
and
(f) HSE inspectors test the veracity of the information
received through their prioritised inspection and intervention
programmes.
7.1.6 The UK industry has an established
safety culture and demonstrates a mature and responsible approach
to safety issues. There is a strong track record of collaboration
with regulators, the trade unions and the workforce to share lessons
learned and improve practice, as exemplified by the creation of
Step Change in Safety in 1997, the Helicopter Task Group, the
response to the HSE's KP3 and KP4 reports and OSPRAG, in response
to the Macondo incident in the Gulf of Mexico.
7.1.7 Since the creation of Step Change,
there has been a marked improvement in the offshore oil and gas
industry's overall health and safety performance. The industry
has today one of the lowest non-fatal injury rates in the UK and
is safer than agriculture, construction, manufacturing and even
the wholesale/retail and public administration sectors.
7.2 Environment
7.2.1 The UK offshore industry is subject
to stringent international, EU and UK environmental controls,
which lay down the requirements for consents, permits and environmental
reporting (as well as the limits for discharges and emissions),
inspection, investigation and enforcement. Central to this is
the requirement for all operators to have an independently verified
Environmental Management System in place, which ensures that appropriate
control measures are applied.
7.2.2 The regulations require every offshore
operation, including exploration drilling to have an approved
Oil Pollution Emergency Plan (OPEP), approved by DECC in consultation
with specialist advisers. These are tailored to location and the
environmental and socio-economic sensitivities within a potential
impact area; updated as required; and exercised periodically.
Specific spill response is provided by specialist contractors
from common resources, supported by additional local resources
where required. Response personnel are appropriately trained through
accredited courses.
7.2.3 The industry in the UK has the services
of Oil Spill Response (OSR) available to it. This was established
as an industry cooperative in 1985 to provide a dedicated and
shared oil spill response capability for UKCS offshore operations.
7.2.4 Companies in the UK are responsible
for environmental or other damage if their installations fail.
There is no legislative cap on a company's responsibility for
clean-up and compensation. However, in the event of a default
on payments, under a mutual agreement established in 1975, administered
by another industry cooperative, Offshore Pollution Liability
Association Ltd (OPOL), the rest of the industry will step in
to pay third-party costs up to a limit of $250 million.
8. What are the implications of the Gulf
of Mexico oil spill for deepwater drilling in the UK?
8.1 While investigations into the Macondo
incident continue, it is too early to draw final conclusions into
its causes. However this has not stopped the industry from taking
action.
8.2 The Gulf of Mexico incident obliges
the industry to reconsider the worse case scenarios and demonstrate
to the satisfaction of all its stakeholders that it is competent
to drill all targeted reservoirs on the UKCS and has the capacity
to respond effectively to a loss of well control and to any resultant
oil spill.
8.3 The formation of OSPRAG in part responds
to that requirement. It is currently engaged in assessing the
UK's strengths and reviewing possible enhancement, including how
additional well capping and control techniques might be developed
and related oil spill response mechanisms extended.
8.4 This work is going ahead in advance
of the publication of the investigations into the Macondo incident
but will, nevertheless, be ultimately informed by these findings.
It is therefore important that OSPRAG be given space to deliver
and its recommendations not be pre-empted.
8.5 It is our belief that to impose a moratorium
on deepwater drilling or additional regulatory burden on the UKCS
would be unwarranted and unjustifiable. The risks involved in
drilling in the UKCS (including in deep water areas) are well
understood, there are effective multiple barriers in place, a
strong workforce engagement and safety culture, together with
a robust regulatory regime, which is enforced by competent regulators.
8.6 Furthermore, an additional layer of
regulation at EU level would add no additional value to the existing
robust process in the UK, other than more bureaucracy and the
potential to complicate and confuse.
September 2010
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