Last reviewed 17 September 2013

More frequent severe storms with towering waves caused by global warming could make it increasingly difficult for the Government to meet its goal of maximising oil and gas extraction from the North Sea. Jon Herbert looks at the issues.

The impact of climate change could cost hundreds of millions of pounds each year as intense storms batter production platforms in the shallow North Sea continental shelf basin, which has produced 41 billion barrels of oil over the last 50 years.

This odd conundrum has been identified by the International Energy Agency (IEA). It comes at a time when the Government is anxious to maximise the extraction of hydrocarbons on the UK’s doorstep as part of its secure energy mix strategy.

Meanwhile, as a new study looks at the remaining future of the North Sea — and the area known as West of Shetland, the Atlantic Frontier or the Atlantic Margin — a growing number of small companies from countries that include China, South Korea and Abu Dhabi are investing in depleting North Sea oil and gas fields to gain valuable expertise to re-export around the world.

Boomerang

There is an irony to the IEA’s message. It recently announced that global greenhouse gas emissions rose sharply by 1.6% during 2012. This puts the world on course for an average air temperature increase of 4°C by 2100, says the organisation originally founded to co-ordinate a collective response to the 1973/74 oil crisis.

Such a rise would be double the “safe” 2°C goal agreed by some 200 countries that has yet to be translated into internationally binding law.

The boomerang effect for North Sea operators is likely to be sudden and devastating with much more powerful waves, warns the IEA. These could damage platforms and make it significantly harder for production staff to reach production targets.

It estimates that storm-proofing will increase the price of future platforms by some 10–15%. With investments of circa £13 billion planned in the coming year on new North Sea infrastructure, according to the industry association Oil & Gas UK, this could add up to £200 million to the engineering bill.

As European countries seek secure and sustainable future energy supplies by a number of different routes, the IEA warns the 28 EU Member States it advises that swift action is still needed to live in harmony with rising world temperatures.

“Climate change has quite frankly slipped to the back burner of priority politics,” said Maria von der Hoeven, IEA Executive Director. “But the problem is not going away, quite the opposite.” She added: “We simply can’t afford to delay.”

In the worst-case scenario, warming could quite feasibly be as high as 5.3°C, predicts the IEA. However, it is more optimistic that improvements in energy efficiency in buildings, industry and transport, limiting “least efficient” coal-fired power stations and cutting fossil-fuel subsidies could by 2020 put the world 80% back on course for a 2°C rise at no net cost to the global economy.

Government enthusiasm

The Government is keen to stimulate offshore oil and gas output for a number of reasons. As one of six prime generators of UK economic activity and income, the oil and gas industry is seen as fundamental to energy security, tax revenues and a trigger for growth.

It still employs directly and indirectly 440,000 people and is a focus for technical innovation and skills development. It supports extended supply chains that create income streams for businesses across the full spectrum of manufacturing and service sectors. But old age creeps up on us all.

Secretary of State for Energy and Climate Change, Ed Davey, puts the problem and challenge in context. “Although investment levels are rising strongly, the UKCI (UK Continental Shelf) is one of the most mature basins in the world and therefore faces unprecedented challenges.

“Our offshore infrastructure is getting older and we are seeing a decline in the rate of exploration and in the amount of oil and gas that is being recovered.

“All these issues need to be addressed if we are to stimulate innovation in this sector and see maximum economic benefits for the UK in the decade ahead.”

Sector review

The man of the moment has been named as Sir Ian Wood, who ran the Wood Group service giant from Aberdeen for 41 years. He will lead a high-level review that will consider how the North Sea industry that produced 4.5 million barrels in 1999, a figure that will reach an all-time low of 1.5 million barrels in the current year, can exploit every last feasible drop. It is calculated that there are still some 25 billion barrels underground.

This is where the North Sea is in the second phase of its exploitation. The large fields have yielded their output to the oil giants. Now, smaller companies with the patience, technology and ambition have moved in to make a profit out of forcing oil and gas from the margins.

The recession has led to some surprises. In 2003, there were 78 companies in the North Sea, either operating existing fields or developing new ones. Today, there are 131 companies, of which 55 have no reserves.

Before the financial crash, it was viable for small adventurous companies to raise stock market funding. Today, few want to gamble on risk. Those who do have oil of their own often need finance to bring it out of the ground. This is where a new generation of investors, such as China’s Sinopec, have decided to sink funds into the ageing basin that is still a world leader in drilling technology and hydrocarbon expertise.

As Sir Ian points out: “The values involved in UK oil and gas are so large that even modest increases in key production metrics over time will deliver significant economic benefits.”

Sub-sea revolution

However, there is another pioneering trend in the North Sea that could pave the way for working far below the surface environment in really deep water not only off Shetland but also in the beckoning Arctic Ocean.

The current evolution of sub-sea technologies could break the tie with surface platforms and perhaps even surface drilling rigs. By taking the technology of oil and gas exploration to the seafloor, the industry could potentially avoid much of the impact of storms and waves. It could even potentially sit safely beneath the enormous icebergs that could cause havoc with surface working in the high Arctic.

Recently, a major step forward in the technology was made by the Norwegian state oil company, Statoil. Statoil has placed a compressor structure roughly the size of a football pitch on the North Sea floor some 125 miles off the Norwegian coast. Crucially, it calculates that having its machinery on the seabed near to the gas reserves it exploits will save 30–35% of the energy needed for a similarly priced plant (£2 billion) on a conventional platform. The plant will be serviced by robots and is designed to keep the electrics dry — a major challenge.

Environmental concerns

The compressor is intended to squeeze some $30 billion worth of further gas from a depleting field. But not everyone is happy.

Norwegian environmentalists say that a state-owned enterprise should not chase diminishing reserves of hydrocarbons but show a lead in reducing carbon emissions through renewables.

They point out crucially that the world can only burn one third of its known reserves if it is to stay within the 2°C temperature rise guidelines. So why seek more?

Greenpeace in Norway believes that both energy companies and governments are trapped within the adventure of chasing every last barrel. It notes that Norway is a leader in clean technology, including the development of carbon capture and storage (CCS) technology. But CCS simply isn’t setting the hearts of oil company CEOs beating in the same way that bringing the black stuff to the surface does.

Part of the problem is cost. The Norwegians have proved in trial plant that 90% of CO2 from gas-fired power stations and oil refinery exhaust can be captured and recovered. But it is far too costly.

If world governments really want CCS technology to work, they have to put policies into place to make it work. Companies can make billions of dollars from subsea production advances. CCS is a loss-maker under the present global economic regime, say critics.

The Carbon Tracker Initiative estimates that known world coal reserves account for 1817 billion tonnes of carbon dioxide, oil for 615 and gas for 363.

In contrast, the level of CO2 emissions that can be released within agreed temperature targets is 886.And the world has just 565 left to use if it is to stay on track to 2050.