Under an innovative proposal to recover oil and gas through new techniques, Scotland is set for a new “black gold bonanza” according to group of leading oil and gas experts, that will see the operational life of the North Sea extended for another century.
And this is a view also shared by the UK Government. Creating what would be equivalent to one of the world’s largest oil fields this could bring an additional £300 billion in tax revenues to either the UK Treasury or a Scottish Government either independent or with full control over oil and gas revenues.
The potential for this sector forms the basis of independent business organisation, N-56’s, latest Scotland Means Business on oil and gas out today (Thursday 4th September). This is part of a series of reports from N-56 which aims for Scotland to become one of the top five wealthiest countries in the world.
The innovative proposal was revealed by world-renowned petroleum geophysicist Dr Christopher Cornford, at a major conference – “Unconventional Resources and Technology” in Denver, Colorado, drawing together over 4,500 oil industry professionals.
Attended by N-56 and attracting much interest from leading industry experts Dr Cornford, who has been leading a team working on the project for three years outlined how the team’s work has challenged previous assumptions about the viability of offshore shale oil and gas production in the North Sea.
By taking the drilling and horizontal fracturing technologies that have been pioneered in the USA, and applying these in an offshore setting, the proposal has the potential to reinvigorate the North Sea. The target for this revolutionary production proposal is the Kimmeridge Clay formation, an Upper Jurassic organic rich shale which is the major oil and gas source rock for the Central and Northern North Sea.
On top of the up to £365 billion estimated to be currently obtainable in tax revenues through conventional means between now and 2040, combined with this up to £300 billion from oil and gas production through these new techniques would see North Sea oil and gas revenues of up to a staggering £665 billion, more than double the total taxation from oil and gas received to date (£313 billion). By contrast, the UK’s economic watchdog, the Office for Budget Responsibility (OBR), has put this figure at £57billion between 2014 and 2040.
To date 42 billion barrels of oil and gas have been produced from the North Sea using conventional production techniques and there is a consensus that there are remaining conventional reserves of around 24 billion barrels (how much of this is produced will depend largely on whether policy recommendations to encourage collaboration and maximize recovery are implemented).
Unconventional oil and gas from the Upper Jurassic Kimmerige Clay formation could add a further 21 billion barrels, almost equal to that of the estimated 24 billion barrels of conventional oil and gas resources remaining.
The estimate of 21 billion barrels could have a wholesale value of £1-£2 trillion (depending on oil prices) and even assuming that tax rates were set at half the level for conventional production the income to the Treasury could be between £150 billion and £300 billion.
This is on top of the up to £365 billion that could be generated from the North Sea if the recommendations outlined in N-56’s previous report, such as a more competitive tax regime and exploration incentives, are implemented. To put this in some context the total tax paid from conventional production to date is estimated at £313 billion.
This is based on a conservative recovery rate of 5% of the unconventional oil and gas in place in the North Sea of 420 billion barrels of oil equivalent (boe), the vast majority of which would be in Scottish waters.
With the potential to tie back unconventional production to existing platforms in the North Sea, this could provide a financial benefit by delaying North Sea infrastructure abandonment and prolonging the life of the North Sea.
Supporting the view that Scotland could be sitting on a “fortune of black gold” is the UK Government, with a senior official within DECC (Department of Energy and Climate Change) commenting:
“They (Trapoil) are developing technology which will enable them to successfully recover oil from this structure and as there is a considerable amount of this source rock around it could potentially be an enormous new play for the North Sea. As you may expect the potential upside for Trap is huge and as such there is a lot of commercial sensitivity around their work.“
This is also the assessment of the Danish state-owned oil company, Nordsofonden, who have described the Danish offshore unconventional shale oil & gas resource as ‘a potential game changer’.
Maersk Oil, the dominant producer on the Danish Continental Shelf, has been studying the offshore unconventional potential of their Upper Jurassic source rocks for over three years and describes the project as “a flagship project with large implications for the future of Maersk Oil in Denmark in case of success.”
Trapoil, an independent UK oil and gas exploration company, own the sole license for unconventional oil & gas in the North Sea.
Trapoil’s CEO Mark Groves Gidney stated:
“Offshore unconventional oil and gas could materially change the UK economy, let alone the North Sea oil and gas industry.”
New York headquartered Kimmeridge Energy promoted the potential of the Kimmeridge Clay:
“The Kimmeridge Clay is a world-class source rock with a long unconventional history and potentially a future role in taking unconventional activity offshore. Although it is not widely known today in the unconventional community, we hope that the name Kimmeridge will become a familiar one to many over the next decade.”
Experts who have added their weight to this North Sea potential include Professor Richard Selley, a Senior Research Fellow and Emeritus Professor of Petroleum Geology at Imperial College, London and Dan Jarvie, Chief Geophysicist at EOG Resources, the USA’s largest shale oil producer.
Commenting on offshore unconventional oil and gas extraction Professor Richard Selley of Imperial College, London said:
“The in place resources of oil and gas in the Kimmeridge Clay in the North Sea are vast. The technology to extract it is tried and tested. The kit – platforms & pipelines – are becoming available as the conventional fields deplete.”
Dan Jarvie, who has worked on unconventional shale oil and shale gas plays since 1989 (including supporting Mitchell Energy’s pioneering work on the Barnett Shale) said:
“This is an intriguing possibility and while out of the ordinary should be investigated further”.
Martyn Tulloch of Tulloch Energy said:
“The prize available to the UK or Scottish Government through unconventional oil and gas could be colossal and as a nation we could be sitting on a fortune of black gold that will last for another century, well after conventional oil and gas runs out. Should the proposal outlined in Denver prove to be viable, then we must grab the opportunity it presents with both hands, prolonging the life of the North Sea as well as creating an oil fund on the scale of the Norwegian oil fund, to serve both this and future generations.”
Graeme Blackett from BiGGAR Economics said:
“Scotland’s public finances would be given colossal boost through access to these new oil and gas reserves. These finds are reminiscent of the early North Sea discoveries from over 40 years ago, such as the Brent Field, and would propel Scotland towards the top of the global league table in terms of oil and gas production.”
“This new report shows the strong possibilities in offshore unconventional and hard to reach oil and gas, and shows that when combined with existing reserves Scotland could have almost double the oil and gas reserves we previously thought.
“We welcome the report and are interested in exploring the huge potential benefits for the industry and the country that it represents. Its particularly interesting to note that the report suggests that both the UK and Danish Governments are taking this opportunity very seriously.
“Scotland is rightly taking a cautious, considered and evidenced-based approach to onshore unconventional oil and gas. That major opportunities are opening up for offshore unconventionals shows that the wealth of the North Sea can continue to deliver for the people of Scotland for many many years into the future
“What is crucial is that Scotland has the powers of independence to ensure that it is the people of Scotland that benefit from these riches – not the Westminster Treasury that squanders them.”
Mr Ewing also welcomed another new expert report from Investec Economics, which has confirmed that North Sea oil is a bonus and not the basis of Scotland’s economy.
The paper, from Investec Economics, says that – even without North Sea output – Scotland and the rest of the UK’s economies are “roughly equal”, and adds that overall, Scotland’s GDP per head is “about 10% higher” than the rest of the UK’s.
“This report backs what we have always said about North Sea oil – it is a fantastic bonus for Scotland’s economy, and not the basis of it.
“And it confirms that Scotland is significantly wealthier per head than the rest of the UK, meaning our economy has a very sound basis to start life as an independent country.”