Changing North Sea identities

The economic crisis precipitated by the low crude prices of 1998 brought with it a kind of crisis of identity for the North Sea oil and gas industry.

The economic crisis precipitated by the low crude prices of 1998 brought with it a kind of crisis of identity for the North Sea oil and gas industry. Yet while the region's recovery is under way-with the UK Offshore Operators Association (UKOOA) expecting a 30% hike in development spending this year and the Norwegian Ministry of Petroleum about to award a tranche of exploration licenses-the reinvention of the industry that grew up around the North Sea is in limbo.

For the Norwegians, one feature of the industry's future identity is clearly natural gas. Statoil AS CEO Olav Fjell said last week the soon-to-be-partially privatized state-owned company plans to build on its position as the "largest European gas supplier" by tapping gas fields already on stream to grow its UK market share from its current level of "almost zero."

No less a believer in Norway's future as a gas producer, the country's minister of petroleum, Olav Akselsen, spoke recently of continuing talks between his government and Poland's on constructing a gas trunkline directly linking the two countries.

New industrial persona

On the UK side of the North Sea, it has proved harder to fashion a new industrial persona. The region planned to become known for transforming itself from the spiritual home of large-scale, hostile environment, offshore oil and gas engineering to that of technology-driven, intelligent oil and gas satellite developments.

There is no arguing that there have been great strides taken toward this new identity. Pilot, the government-industry body charged with extending the producing life of the province, brainstormed, among its initiatives, the Logic satellite accelerator scheme to advance 300 marginal discoveries, the online asset trading initiative, Lift, and latterly Exploration LIFE (Lift Inspired Farm-In Event), designed to drum up ideas to generate new seismic and drilling activity.

High oil price downside

Ironically, the central stumbling block to Lift has been the very high oil price that has given wings to the other two schemes.

With crude selling at $30/bbl, many of those producing assets that might have found their way on to the trading block in 1998 when oil was $10/bbl, are now good money-spinners for the field partners. This twist of fate naturally puts a crimp in expectations of the "new breed" North Sea independents expected to be briskly swapping assets-while helping to define the identity of the province's so-called Third Age.

UKOOA, in its economic report for 2000, highlights the 36 billion boe potentially to be recovered "from around the British Isles," but can do little more restate that "cost reductions and the application of new technology remain key if the UK is to continue to attract investment," a line heard regularly in recent years.

The larger incentive for rebuilding the UK oil and gas industry-in whatever guise should emerge-rests with Britain's government. For as UKOOA records, that the industry accounted for 18% of total UK industry investment over the last decade, while treasury receipts of offshore taxes in 1999-2000 totaled £2.6 billion, makes it worth New Labour's while.

Doubtless the UK oil industry will be propelled toward finding its new identity before the country becomes a net importer of oil and gas.

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