Energy industry warns of need for more fiscal support at Norwich conference as energy production costs increase
11:00 02 March 2012
In the last of a week-long series looking at the energy sector in this region, business writer Annabelle Dickson heard of the aspirations and concerns of an industry looking to seize the sea of opportunity at a sell-out Norwich conference yesterday.
The packed auditorium and busy stands at the aptly titled Sea of Opportunity Southern North Sea energy conference in Norwich yesterday was testament to the many businesses hoping to capitalise on the industry.
But while there was a real buzz and optimism about the future of the industry in this region, conference chairman John Westwood warned energy bills were set to double as speakers voiced concerns about the rising costs of oil and gas production, and a need for more support from the government.
Chief executive of gas industry body Oil and Gas UK Malcolm Webb called for changes in this month’s budget to the fiscal regime for the industry after the body’s activity survey published this week recorded an 18pc decline in oil and gas production in 2011, rising to 20pc for gas.
He said that while figures showed capital expenditure had increased, it was due to a small number of large projects.
He said the UK continental shelf still had the potential to deliver up to 24bn more barrels of oil and gas, but the current system would only unlock 10bn of those.
He called for a new contract to provide certainty about a continuation of decomissioning tax relief and a change to the tax regime known as the “field allowance scheme” which he said would unlock £20bn of investment.
“We need to do something about exploration levels,” he said. “We have got to do something to increase the pace of this.”
He said more meaty projects were going ahead, but the more typical work was not coming through.
Mr Westwood – who founded energy consultancy company Douglas-Westwood – spoke of the importance of offshore energy to the country’s energy security in the future.
But, like others in the gas industry, he warned of the increasing costs of production.
“It takes more and more money to produce less and less oil,” he said.
Mr Westwood said that at the same time as oil and gas were becoming more expensive to produce, the offshore wind sector was being developed.
“Energy bills are going to double. This is a reality. The UK has to replace its coal and nuclear stations. Coal stations will be outside the requirements for emissions,” he said.
When you added that cost together, he said, it was around £130bn and a further £60bn would have to be spent upgrading the national grid for the new mix. Mr Westwood said the challenge was to get costs down – and that had already been seen in the cost of solar panels.
“We have also seen some improvement in offshore wind costs. But this is a real technical challenge. How do we reduce the cost of renewables?” he said.
Mr Westwood said it was impossible to think of a scenario that did not include nuclear, despite the recent disaster in Japan.
The conference also highlighted the huge opportunities for the wind industry, with sessions for delegates to meet people involved in potential new wind contracts.
But Mohr Rainer, the vice president of sales at the world’s second largest wind turbine manufacturer, REpower, said his company was ready to build its new generation of 6MW wind turbines now and that before any announcement about building a factory in the UK, it would need orders on its books.
He said that they would look at turbine production in the UK if they had a five-year assurance of turbines which could produce up to 500 MW.
“That is what a company of our size needs,” he said.
“We have to have the commitment. We need to build up a sound order book before announcing a production site in the UK.”
The firm currently has a factory in Germany which can produce 120 turbines a year.
But other speakers were more upbeat about the potential for this region.
Keith Tucker, decommissioning manager at Perenco, which has its UK operations base in Great Yarmouth, spoke about the successful decommissioning of the Wellend platform.
He said that with 200 Southern North Sea installations there would be between £4bn and £5bn of decommissioning work in the coming decades.
He said that it was well within the region’s capability to get its share of the £4bn or £5bn, with its proximity to the fields and experience in the oil and gas sector.
He said that it could also become an export hub for the industry.
Around 21pc of the cost of the Wellend decommissioning project –which amounted to £7.5m – had stayed in East Anglia, with 66pc going to non East Anglia based companies in the UK and a further 13pc going out of the country.
“It was on our doorstep and the client was a client who likes to use local industry,” he said.
But he said that the Eastern region could potentially win 40pc to 50pc of that sort of business.
Keynote speaker Lord Browne – who was unable to be at the conference – spoke via video link.
The experienced industry figure and former BP chairman said that he had never felt more optimistic about the opportunities in the energy industry.
While there are concerns within the industry, it is one that adapts and innovates and for the 300 people at the Norwich event yesterday, the prevailing view was that in what is a new dawn for the energy sector in this region there really is a sea of opportunity.