Perhaps I was hoping for too much. Leaving aside the poorly researched piece that was prattled in a Sunday newspaper just days before the UK’s 2009 Budget and unjustifiably raised hopes, I had higher expectations of Chancellor Alistair Darling than the measures announced and largely trailed beforehand.
I do not for one minute believe that they will deliver a 20% recovery in UK output, as claimed by said paper. They simply don’t cut it for me in any significant respect except two – heavy crude with a gravity below 18Deg API and ultra-high-temperature/pressure fields with a temperature of more than 176.67C and pressure of over 1,034 bar.
Both will attract a field allowance of £800million, and the maximum in any one year is £160million.
I’m going to concentrate on heavy crude, and especially North Sea Quadrant 9, where a considerable proven qualifying resource exists. Although the extensively assessed Mariner field and sister Bressay are both candidates for development, with field development plans under way, the £800million allowance will surely help remove doubts about viability among owning consortia.
Then there is Kraken – tantalisingly large and in the hands of tiny Nautical Petroleum, whose share price rocketed more than 18% during the afternoon of April 22.
Each would be a big project in its own right, with platforms mapped in for Mariner/Bressay, while Nautical has been toying with the idea of a floating production unit. They collectively represent a large opportunity for the UK/Scottish supply chain if it is deemed competitive enough and if the operators are so minded.
I believe a similar result may be possible for the really tough HP/HT candidates. But why can’t the reliefs be tapered – maximum impact (say 50%) in year one would make a big difference for small players, though would still be small beer to majors such as Statoil.
And why didn’t the Government offer tax breaks to the other sizeable development prospects in the pipeline, especially Laggan/Tormore, but why not also Rosebank/Lochnagar, Clair Phase 2 and, for good measure, Breagh?
If the Government really wants a turnaround in production, so creating a win for the industry and win for the Treasury, then this is the sort of boldness that is required. Really get things moving big time. No more dithering.
And another thing: since the only way to eke out the life of the North Sea is to keep hunting for the hydrocarbons prize, Darling really should have implemented measures to ensure a recovery in exploration drilling, which crashed in Q1. Bear in mind, rigs that leave UK waters will not be hurrying back, especially when the next boom gets under way.
I know I’m speaking for the industry by saying that not to have taken action on drilling is plain stupid. By heavens, Alistair Birnie, CEO of Subsea UK, was right to say that the Darling package “is not a radical enough step to immediately stimulate activity”.
Ever diplomatic (at least in public) Oil & Gas UK CEO Malcolm Webb must surely have been left gnashing his teeth in frustration. How many years of close dialogue have there been?
At least since the late-1990s crash that led to the creation of the Oil & Gas Industry Task Force, which has since morphed as the North Sea industry has evolved, and always with Government representation.
Webb hinted at frustration in Oil & Gas UK’s post-Budget statement by saying: “We must not forget that a number of small companies involved in exploration, the ‘lifeblood of the industry’, are suffering severely from the lack of access to equity markets and we regret that the Chancellor did not act on our recommendations to improve funding of this crucial activity.”
He was right to say, “It is crucial that the dialogue between industry and Government continues, so as to deliver that prize”.
But I would say that there has been quite enough talking. If Government hasn’t twigged the message by now, it never will.
And so to renewables, where Darling did rather better, much to the relief of the offshore wind brigade, one of whose number committed itself to a £1.2billion Irish Sea windfarm within hours of the news that a number of incentives had been put in place to get things moving.
What Chancellor Alistair Darling has just done is toss a piece of platinum wire into the renewables crucible. The question is whether it is a big enough piece to initiate and sustain a productive reaction? Bear in mind, offshore wind is currently sputtering to a standstill, largely due to massive supply-chain cost inflation and, of course, the banks.
So will enhanced subsidies for offshore wind in the shape of £525million worth of ROCs (renewables obligation certificates) through to 2011 and ensuring access to that £4billion of European Investment Bank capital be enough?
UK-wide, on and offshore, there are more than £10billion of “shovel ready” projects, according to the British Wind Energy Association which, in its latest report, points out that our offshore sector is already, and will remain for the foreseeable future, the largest single market for offshore wind in the world.
BWEA says that, once the Round 3 zones are awarded, there will be nearly 40,000MW of projects in varying stages of development in UK waters, including 565MW of operating capacity, 775MW under construction and more than 4,000MW with consents but not yet being built.
The trade body reckons that at least 20,000MW is deliverable by 2020, which will be vital if the UK is to meet its targets for both renewable energy and carbon emissions. Well folks, that’s 4,000 five-megawatt turbines and everything that goes with – a lot of business.
So will the measures just announced be enough? I believe they just might be – at least short-term.
That DONG, of Denmark, committed to £1.2billion of North Sea wind projects within three hours of the Budget statement says a lot.
Basically, Darling is banking on getting things moving on the cheap and then hoping that enough momentum will build to ensure up to £100billion of wind investment offshore Britain in the long term.
He wants the market to rule. He basically isn’t interested in a really long-term strategic approach to wind, let alone wave and tidal energy.
However, let’s be thankful that Budget 2009 is some sort of a step in the right direction.