IEA recommends UK energy policy improvements

March 1, 2007
Data on current and future offshore oil and gas production on the UKCS should be more transparent so the industry is better informed about future drops in production, urged Claude Mandil, IEA executive director.

Uchenna Izundu
International Editor

LONDON, Mar. 1 -- Data on current and future offshore oil and gas production on the UK Continental Shelf (UKCS) should be more transparent so the industry is better informed about future drops in production, urged Claude Mandil, executive director of International Energy Agency, in London Mar. 1.

Unveiling IEA's latest review of UK energy policy, Mandil said the latest information on production in 2006 showed a 6% drop on the year before, which had been "a surprise," as production had declined faster than originally anticipated. He recommended that government increase resources to improve the quality of information and that data should be given to market participants to provide signals about investing in supply infrastructure.

The UKCS is a mature province where companies are investing larger sums to produce amounts of oil and gas smaller than the large finds made in the last 20 years. The UK has produced about 70% of its total possible oil reserves and 65% of its total possible gas reserves. However, the UK Offshore Operators' Association estimates there are 16-25 billion boe yet to be recovered from the UKCS. In the report, IEA endorsed domestic production and advised the government to provide the appropriate fiscal and regulatory regime to attract investors.

"The government has managed gas and oil production in the North Sea without undue interference in private-sector activities. This production has provided a financial boon for the producers (UK and international) economic development for many regions bordering the North Sea, substantial taxes at national and local levels, and enhanced energy security," the report added.

Other recommendations
A key recommendation proposed in the report is that the government uphold a predictable fiscal regime to attract investment and achieve a balance between oil producers and the country's interest.

Also, because the UK has become a net importer of gas, Mandil said, it is important for the government to streamline its planning process for strategic energy infrastructure or it will find new projects not built on time. Local communities have successfully delayed major gas storage projects because of the bureaucratic planning process.

"Local communities can and should have a degree of permitting authority for new facilities. However, since these facilities benefit the country as a whole, the UK government has a role in ensuring that permitting is not duly delayed," the report said.

Mandil commended the UK government for having one of the most liberalized markets in Europe and using market mechanisms to attract investment. He stressed the need for long-term certainty and targets as the government prepares to publish its White Paper on energy within the next month. In pursuing government policy, communication across government departments is important, he added, as is assessing overlaps with European initiatives to ensure there are no adverse impacts on European goals such as the Emissions Trading Scheme and the carbon levy.

UK Energy Minister Peter Truscott welcomed IEA's findings, describing them as "constructive and positive. It shows that the UK is heading in the right direction, especially with security of supply and climate change."

He acknowledged that the government needs to improve energy efficiency—a central tenet of its policy to reduce energy consumption—and curtail carbon emissions. "There is no room for complacency as we've got to achieve reductions in emissions. The UK has introduced climate change legislation, but we've got to act internationally to move towards a low carbon economy."

Nuclear power
However, the role of nuclear power in the UK's future energy mix remains uncertain. Mandil said the UK could progress on this if it makes clear to the public how it will dispose of waste, saying France and Finland are "more advanced on dealing with this."

IEA recommended that the government establish a legal and regulatory framework for potential investors to assess the short and long-term risks and benefits of building a new nuclear plant.

Truscott said that the government will not directly intervene in the development of the nuclear sector. "Any new nuclear capacity will be developed and financed by the private sector," he added.

Greenpeace, in a High Court judicial review last week, succeeded in compelling the government to hold a wider consultation on the future role of nuclear power in the UK's energy mix. The Department for Trade and Industry, which develops energy policy, has committed to wider consultancy, and will publish its nuclear policy in the Energy White Paper within the next month.

Contact Uchenna Izundu at [email protected].