UK Deepwater Drilling - Implications of the Gulf of Mexico Oil Spill - Energy and Climate Change Contents

Memorandum submitted by Oil and Gas UK


  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.


  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.


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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