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

Memorandum submitted by DONG Energy


    — The Macondo blowout in the Gulf of Mexico was a tragic accident which has challenged the whole oil and gas industry to carry out a thorough and detailed audit and revalidation of its safety, environmental and operating processes across all of its exploration and production (E&P) activities;

    — In the immediate wake of the Macondo incident DONG Energy established an internal "Deepwater Horizon Learning Task Force". This was designed to ensure that all information and data emanating from the various technical groups and industry initiatives established to investigate the incident could be comprehensively gathered, distributed and incorporated throughout the organisation's procedures;

    — DONG Energy has stringently re-appraised the existing regulatory regime against our internal processes and concluded that the goal-setting framework in the UK is robust and fit for purpose for operations in all water depths;

    — In light of this, we do not believe that there is a requirement for a moratorium on drilling in the West of Shetlands;

    — The industry response to the Macondo incident through OSPRAG will allow the industry to apply the lessons learned from the disaster; and

    — A moratorium would prevent the discovery and extraction of the new sources of gas supply from the West of Shetland which are required to mitigate the decline in supply from other areas of the UKCS. This continued supply is imperative as the drive for renewable electricity will demand new, low-carbon, flexible gas fired power plants to compensate for the intermittency of wind generation.

1.   DONG Energy Company Profile

  1.1  DONG Energy is a leading energy company operating in Northern Europe and headquartered in Denmark. It has a strong presence across the energy value chains. These include Exploration and Production, Generation (thermal and renewable), Energy Markets and Sales and Distribution. DONG Energy does not however supply energy to retail customers in the UK.

  1.2  By 2020, DONG Energy aims to have reduced its CO2 emissions per kWh of generation by 50%, and by 85% by 2040. In order to achieve these targets, growth has been focussed on the two main areas of Renewable Power Generation and natural gas. The United Kingdom has a major part to play in both areas.

Exploration and Production (E&P)

  1.3  DONG Energy is one of the largest acreage holders in the West of Shetland Region and a partner in the recently sanctioned Laggan-Tormore gas development. The company's first operated well in the UK (the Glenlivet gas discovery) was drilled in the West of Shetland in 2009. It has interests in a further six discoveries. DONG Energy is not currently drilling as operator in UK territorial waters. Aside from the UK, DONG Energy is the operator of nine licences in Denmark, six in Norway, including the Barents Sea and one in Greenland.

Renewable Power Generation

  1.4  DONG Energy is one of the most active offshore wind operators and investors in the United Kingdom. The company currently operates three offshore wind farms (Gunfleet Sands, Barrow & Burbo Bank). It has a stake in a further two sites currently under development (London Array and Walney). DONG Energy is the major shareholder in London Array. It also possesses a strong pipeline of potential future renewable projects.

Thermal Generation

  1.5  In thermal generation, DONG Power UK is close to completing a new CCGT gas fired power station of 824MW output at Severn in South Wales.

2.   What are the implications of the Gulf of Mexico oil spill for deepwater drilling in the UK?

  2.1  DONG Energy believes that careful planning, competence of personnel, integrity management of equipment and risk management of operations are imperative prerequisites of safe conduct and acceptable results. Whilst the physical conditions of deepwater drilling do change the requirements for planning and equipment, the principles for operations, risk management and risk reduction remain the same. The application of the lessons learned from the Macondo incident should not therefore be limited to deepwater operations, regardless of definition.

  2.2  The principle implication of the Macondo incident is a renewed need for the oil and gas industry to actively demonstrate that it has taken account of worst case scenarios in its planning. It must be able to demonstrate to the satisfaction of all interested stakeholders that it is competent to drill safely in all targeted reservoirs on the UKCS and that it has the capacity to respond promptly and effectively to a loss of well control and to any resultant oil spill—however unlikely that occurrence might be.

  2.3  It is important to consider what defines deepwater drilling and, more significantly, what impact water depth had on the operations and incidents leading up to the Deepwater Horizon blow-out. Depth was but one factor of many. Whilst drilling does take place at significant water depths in the West of Shetland Region, other factors are notably different to those at Macondo. Temperature and pressure, for example, are substantially lower in the WoS. Judgement of risk on water depth alone is too crude a measure.

  2.4  There is no standard or uniformly adopted definition of deepwater operations. However, for the purposes of progressing the investigations into deepwater drilling in the UKCS, DECC, HSE and MCA use the term "deepwater" to indicate drilling operations in water depths of more than 300 metres. When the UK offshore oil and gas business was in its early development phase in the early/mid 1970s, water depths of 200 metres were considered "deep". Over the last three decades, the global offshore drilling industry has developed technology and experience that has enabled drilling operations to take place in water depths as high as 3,000 metres. Advances in offshore technology mean that the number of regions of the world in which exploration is possible will continue to grow in the years ahead.

  2.5  There are fundamental challenges and risks to any form of drilling. Some of these are specific to the conditions and environment of a certain area, but others are common to all. Maintaining and ensuring well control, both primary and secondary, is of overriding importance in all drilling operations anywhere, whether onshore or offshore, in shallow or deep water. DONG Energy conducts its operations in accordance with management systems based on regulatory requirements, international standards and norms, industry best practice and more than 30 years of operational experience. We believe that the probability of major accidents is dictated by a variety of factors including company policy, equipment, procedures and personnel—not on the specific location alone. Our operations are constantly evaluated against risk to ensure that risk is reduced as low as reasonably practicable (ALARP). We look for continuous improvement in our planning and operations and require absolute compliance with our internal company standards wherever we operate.

DONG Energy's response to the Macondo incident

  2.6  In the immediate wake of the Macondo incident DONG Energy established an internal "Deepwater Horizon Learning Task Force". This was designed to ensure that all information and data emanating from the various technical groups and industry initiatives established to investigate the incident could be comprehensively gathered and distributed throughout the organisation. Furthermore, it has ensured that DONG Energy is aware of all industry programmes and is well-equipped to contribute its expertise as appropriate.

  2.7  DONG Energy in the UK has played a full and active role in the work of the OSPRAG Technical Review Group sub-teams to ensure effective cross-industry learning and the dissemination of best practice.

3.   To what extent is the existing UK safety and environmental regulatory regime fit for purpose?

Regulatory Regime

  3.1  In contrast to the US and other parts of Europe where regulation lays down precisely what an operator is expected to do, the UK HSE regulatory environment is based on a goal-setting, non-prescriptive regime. This approach was developed following Lord Cullen's inquiry into the Piper Alpha tragedy of 1988. Under the current process, operators on the UKCS are required to show that they have taken appropriate steps to identify and assess the consequences of major accident hazards and to demonstrate to the regulator that necessary measures have been taken to reduce these risks as far as reasonably practicable. The regime is also designed to give precedence to the safety of personnel and places an emphasis on the prevention of accidents. This approach has been seen to be effective and successful over the past 20 years. DONG Energy subscribes to the widely-held view that the UK regulatory regime is regarded as one of the most thorough and robust in the world.

Offshore Installations and Wells (Design and Construction, etc) Regulations 1996 (DCR)

  3.2  A key component of DCR is the requirement for a formal well examination scheme and the appointment of a Well Examiner. The regulation requires that the design, construction and maintenance of a well must be independently verified and defines the Well Examiner's role in examining all stages of a well's planning, execution and operation throughout its life cycle. DONG Energy places a high importance on well design, planning and construction. All DONG Energy well designs are planned from the conceptual stage of a Basis of Design (BOD) and evolve through the sequential cycle of a well planning process. DONG Energy has five clear stages of well planning, from the initial Business Planning and Feasibility Study stages, through to the final Execution phase synonymous with the drilling of the well. Prior to progressing through each stage, the well design is peer reviewed by both in-house and external bodies. This includes assessment by the UK Well Examination scheme, which reviews and assesses well design. Ultimately, the final well design is presented to and examined by the independent Well Examiner and Health and Safety Executive (HSE), prior to final sign off and acceptance of the well plan. DONG Energy considers these requirements to represent a robust and practical method of managing and controlling well design to ensure the safe drilling and completion of wells on the UKCS.

Environmental Management

  3.3  The management of environmental matters on the UKCS is subject to strict UK, EU and International environmental legislation. This legislation is broad and far reaching and defines requirements for consents, permits and environmental reporting. Limits for discharges and emissions are also included, as are arrangements for oil spill planning and response. These matters are under the control of DECC which is also responsible for inspection, investigation and enforcement. In line with OSPAR requirements, DONG Energy operates under an ISO 14001 certified Environmental Management System. The ISO 14001:2004 certification provides independent verification that DONG Energy conducts its activities in an environmentally responsible manner and is compliant with UK law and relevant oil industry standards. The award of the ISO certificate confirms that the company has identified and assessed the environmental impacts and risks of its operations and has a reliable system in place to manage these issues.

UK Regulatory Bodies

  3.4  DONG Energy recognises and acknowledges the wide-ranging skills, knowledge and experience of both HSE and DECC. Both organisations possess the ability to access a wide range of knowledge and experience which adds exceptional value when assessing the management of safety and environmental risk offshore.

4.   What are the hazards and risks of deepwater drilling to the West of Shetland?

  4.1  The West of Shetland area is not considered to be an especially deepwater area by global industry standards. The most significant hazards with West of Shetland operations are its remoteness and the meteorological and oceanographic conditions encountered in the region particularly during winter months. Wind, waves and currents are more severe and often less predictable than in other areas of the UKCS. DONG Energy is extremely confident that the risks associated with these hazards are well understood and well managed under a fit-for-purpose regulatory regime and an effective safety culture with multiple barriers in place. DONG Energy keeps these systems under regular review, most recently in light of the Macondo incident.

  4.2  Water-depth and deepwater currents impact on all aspects of drilling operations. These must be carefully planned for and managed, particularly in the event of severe weather conditions which require the rig to disconnect from the well until those conditions subside. Due to significant water currents at different depths, more care must be taken with riser design, well-head fatigue analysis and general load distribution. These and many other aspects are major considerations in selecting a suitable rig to operate West of Shetland and are often more demanding criteria than applied to normal UKCS activities. The selection of the right drilling rig is essential. Dynamically positioned rigs and drillships are typically used in water depths greater than 300 metres and use sophisticated sensors, together with their own thrusters and propellers, to maintain position and heading.

  4.3  DONG Energy is active in several areas in the West of Shetland. During 2009, the company (as operator) successfully drilled an exploration well on the Glenlivet field in UKCS Block 214/30a with no incident or accident. This well is classed as a discovery and it is intended that this field should be developed further. Whilst the Glenlivet field is a normally pressured gas reservoir, DONG Energy will ensure that any and all lessons learned from the Macondo incident will be implemented in internal processes both for operated and non-operated activities.

  4.4  In total, more than 400 wells have been safely drilled West of Shetland over the last 30 years. The Foinaven and Schiehallion fields have been successfully producing oil for over ten years and Clair for five years without any significant oil spill incident. The number of wells drilled clearly demonstrates that the industry does have the skills and technology required to operate safely in the West of Shetland area.

  4.5  The UK's goal setting safety regime requires a systematic approach to the identification of hazards and ensures that risks are reduced as low as reasonably practicable through the application of quality engineered solutions and systems. The approach taken West of Shetland is no different.

5.   Is deepwater oil and gas production necessary during the UK's transition to a low carbon economy?

  5.1  DONG Energy believes that the production of gas is critical for the transition to a lower carbon future. The West of Shetland area is currently believed to hold some 17-20% of the UK's remaining hydrocarbon reserves. As such, it is essential for the maintenance of a secure source of supply for the UK, particularly in terms of gas.

6.   To what extent would deepwater oil and gas resources contribute to the UK's security of supply?

  6.1  DONG Energy believes that there is significant remaining gas prospectivity in the West of Shetland outside of the Laggan-Tormore area which could strongly reinforce the UK's gas security in the future. This will require further exploration activity and the installation of further pipelines and infrastructure. It should be noted that the time to drill, appraise and develop fields in the West of Shetlands is very lengthy and therefore it is imperative to maintain ongoing activity to guarantee this future security.

October 2010

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