Britain Ponders End For North Sea Oil Industry – Part One

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It may be small by global standards, but Britain’s oil and gas industry has far greater significance than its size suggests.

Apart from providing a global oil price benchmark — Brent Crude — derived from a blend of sweet North Sea crude types, exploration techniques and production technologies pioneered in the North Sea are used around the world to extract oil from hostile environments. Whatever is done in offshore oil and gas fields around the world, the chances are it was probably done first in the North Sea.

The oil and gas industry is also vital for Britain’s finances. The country still relies on offshore reserves for 55 percent of its energy (Britain became a net oil importer in about 2006), while oil and gas firms paid a fifth of all corporation taxes in 2010-11.

All good things come to an end, however.

Following two production peaks, one in the mid-1980s and the second in 1999 at about 7 million barrels per day, production has declined sharply to about 4 million bpd by 2007 and 3 million bpd today. However, changes to what may appear obscure tax allowances have fired up a renaissance of sorts, particularly in the development of smaller, previously less economically attractive new fields. All of which will ultimately add to the headache that decommissioning will be.

According to the Economist, the British sector of the North Sea alone (Britain shares the seabed, and hence oil reserves, with Norway, Denmark and the Netherlands) is home to more than ten million tons of steel and concrete. One day, when as much oil and gas has been extracted as is feasible, the installations there will have to be removed.

The Economist says dismantling the 5,000-odd wells and platforms and 10,000 kilometers of pipelines will cost around £31 billion ($49 billion) on current estimates, spurring an alternative industry in its own right.

How will this be done?

Check back in tomorrow for Part Two

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