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Royal Dutch Shell Plc .com: Sun not quite set on North Sea oil industry

From The Daily Telegraph
(Filed: 29/06/2006)

A surge in exploration interest offers a ray of hope, but renewable plans for the future shine brightest, writes Roland Gribben

A boost for North Sea oil exploration has provided an unexpected bonus for the Government. Just months after oil companies warned that tax changes in the North Sea regime would deter development and encourage companies to give a higher priority to more attractive openings elsewhere, the Department of Trade and Industry has reported the number of companies applying for new exploration and production licences is running at the highest level for 35 years.
North Sea surge: there are a record number of licence applications

Malcolm Wicks, energy minister, gave an enthusiastic welcome to the level of interest coupled with new figures showing a rise in the number of offshore jobs. He said: “Some say the North Sea is in its twilight years. But the record numbers of licence applications belie this.”

The North Sea fillip comes as the pace of energy developments continues to gather momentum in the run-up to the Government’s announcement on its new energy policy. The Prime Minister has signed a pact with President Jacques Chirac to pave the way for French co-operation on a new nuclear power programme. The Government has also given the clearance for a series of renewable energy projects including clean coal. New surveys point to an acceleration in job creation in the sector.

The Government is drawing considerable comfort from the level of interest in the 24th round of North Sea oil and gas licences, although it is too early to suggest a new series of discoveries is around the corner. Geologists feel the biggest North Sea fields have been discovered and that new finds depend heavily on the contribution that technology can make in discovering smaller pockets.

A faster than expected rundown in offshore production has already caused headaches and raised concern about security of supply along with the growing level of dependency on foreign oil and gas reserves. Consequently any sign of interest in further offshore exploration offers the prospect of increased activity with all its implications for investment and jobs.

The DTI is now scrutinising the 147 applications by 121 companies and hopes to announce licence awards in the autumn. It has been particularly encouraged by the level of interest from non-traditional North Sea explorers who have been offered incentives to start new wells. BP, Shell and the other early North Sea pioneers have led the warnings about the risk to future investment. Both oil giants have shunned the new round but applications from new and existing players is up on last year’s numbers with the result that the level of interest is the highest since 1971, shortly after the start of the North Sea oil and gas boom.

Wicks said: “Interest in the North Sea is still high because determined companies realise that our remaining reserves almost match what we have already exploited. Lately the spotlight has rightly been on cleaner energy, renewables and nuclear, but we still need oil and gas and this surge of interest in the North Sea reflects that.”

Oil company forecasts point to an increase in offshore investment despite the tax complaints and the falling rate of new discoveries. The UK Offshore Operators Association said this year’s total North Sea spending was likely to top the £10bn mark – surpassing last year’s £9.8bn. The number of jobs tied to offshore operations is expected to rise to 380,000 compared with 365,000 last year and 340,000 two years ago.

Onshore investment is also rising sharply. About £10bn is being ploughed into gas import and storage facilities to help improve security of supply and provide a stronger cushion against the risk of shortages. A storage centre at Humbly Grove in Hampshire and a liquefied natural gas import terminal on the Isle of Grain are among the projects. Ten significant new gas storage projects are in the pipeline, more than doubling reserve capacity by 2010.

Alistair Darling, the Trade and Industry Secretary, is attempting to relax planning rules to speed up developments and avoid delays in completing what are regarded as vital projects. “The Government is increasingly concerned that developers are facing unnecessary uncertainty and additional costs through avoidable delays in the planning system,” he said.

The investment momentum is adding to pressures in the market place, where oil and gas companies continue to wrestle with skills shortages in key areas, including technicians, riggers, scaffolders and drilling foremen. The Government is backing seven new industry training programmes.

Job openings remain high throughout the energy and utilities sector. A recent survey from Mandis, the business intelligence service, and Adecco, the recruitment company, showed the sector was leading the way in job creation.

Shortages of experienced personnel are also causing concern in the nuclear power industry, where an ageing workforce and the end of the nuclear power programme has left the sector bereft of young, experienced people. The proposed nuclear power revival could involve Britain relying heavily on France for technology and people.

There has been no shortage of announcements involving energy-linked environmental developments. The Government hopes that renewable energy will account for 10pc of electricity production by 2010, helped largely by the growth of wind farms. Projects are predictably small but the Government sees technological as well as environmental benefits flowing from a whole series of programmes.

Recently Wicks gave the go-ahead to a new energy-from-waste project in London. The 72 megawatt power plant has been struggling to gain clearance since 1990.

A £75m wind farm in Scotland, comprising 28 turbines, is the latest addition to the growing number of controversial sites now springing up around the country. The development by Fred Olsen Renewables at Paul’s Hill, south west of Elgin, is capable of providing enough energy to power 47,000 homes, representing almost 40pc of the total electricity requirements of Morayshire.

The Government has also announced an action plan it says will unlock the potential for renewable energy from crops, trees and waste. Grants will be given for biomass boilers, establishing a Biomass Energy Centre to provide information and advice along with further support for biomass supply chains.

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