Technological advances to bolster North Sea production

North Sea Production, Probable Scenario [122,482 bytes]

An aggressive and sustained technology R&D drive, bolstered by a 500 million ecu contribution from the European Commission (EC) over 5 years, could push back the expected decline of oil and gas production in the North Sea by at least 10 years, thus sustaining Europe's oil field service and supply industry.

This is the likely scenario developed in a 1996-97 study done on behalf of the EC by a number of European energy players under the leadership of Institut Fran?ais du P?trole (IFP). The study was commissioned on behalf of the EC by the European Network for Research in Geo-Energy (Energ).

IFP was coordinator of the project. Other group members are: the Centre for Marine & Petroleum Technology in the U.K.; Rogaland Research in Norway; Geological Survey of Denmark and Greenland, in association with the Danish Energy Agency; and Eniricerche SpA in Italy.

The purpose of the study was to identify the need for new or improved technologies to enhance North Sea hydrocarbon recovery, predict its scope, and estimate its effect on European petroleum spending and employment.

The study

Called "North Sea Oil and Gas Production Outlook," the assessments were based on three technological scenarios. "No statutory, economic, or fiscal aspects have been introduced," said the authors.

The study carries no economic analysis, and no estimates of future oil and gas prices or financial returns have been included. The authors admit, however, that low prices could influence the pace of exploration and new field developments.

Pointing out that the oil industry is "risk aversive" and that, for the foreseeable future, technological improvements in the North Sea will almost certainly be incremental rather than novel, the authors base the three scenarios on different levels of incremental improvements.

Geographically, the report covers the northwest European continental shelf and encompasses some areas outside the North Sea proper, including other parts of the U.K. and Norwegian continental shelves. In order to estimate the North Sea's petroleum potential, the full range of fields were reviewed: producing fields, fields under development or with a firm development plan, undeveloped reservoirs, and undiscovered resources.

The report points out that it is because of important technological efforts that the average recovery factor for North sea fields was relatively high in 1995-96-43-44% for oil and 70% for gas. The recovery factor for chalk reservoirs was only 26%, however.

'Low-tech' scenario

Of the three scenarios considered, the so-called low-tech case rests on an R&D status quo, or at least on only moderate R&D efforts.

In this case, North Sea production should reach nearly 7 million b/d of oil (up from the current 6 million b/d) and 3.5 million boed of gas (up from the current 3 million boed) just after the turn of the century. This would be followed, especially for oil, by a rapid decline, with oil production falling to 3 million b/d in 2010.

This is explained by the fact that the majority of the large fields, and an important part of the smallest reservoirs, started production in the 1970s, '80s, and '90s. Output from these fields will decline from 2000 onwards. Gas production will be sustained until 2015, then rapidly decrease.

In this low-tech scenario, remaining recoverable reserves will increase from 21 billion bbl of oil to 35 billion bbl and from 22 billion boe of gas to 32 billion boe. These quantities are worth about 316 billion ecus, at present value.

Likewise, in this scenario, North Sea investments and operating expenses will decline slowly from 23 billion ecus in 1996 to 18 billion ecus in 2010. Total technical expenses during 1997-2010 will be about 290 billion ecus.

Probable scenario

The picture changes dramatically in the probable technological scenario, as an aggressive R&D policy boosts recovery rates and 400 or so marginal fields are developed. Some of these fields have been known about for more than 15 years but are not economically developable with existing technology.

In this scenario, expenditures will be relatively stable at more than 28 billion ecus/year until 2010, with a cumulative total for the 1997-2010 period of nearly 400 billion ecus.

The money injected into a sustained technological effort will help delay the decline of North Sea production by 10 years. The level of oil production will be maintained at more than 6 million b/d until 2010, and gas production will exceed current output, at least until 2020.

Remaining recoverable reserves will soar to 57 billion bbl of oil from 21 billion bbl, and to 49 billion boe of gas from 22 billion boe. These quantities are currently valued at 825 billion ecus.

The additional reserves are almost equal to the quantity of reserves already being produced, while gas reserves exceed the quantity currently in production.

"In this probable scenario," noted Pierre Simandoux, IFP's manager of European affairs, "a potential equivalent to the Caspian Sea could be recovered."

Ideal scenario

A third scenario-the high case, or "ideal technological scenario"-was studied, but is not regarded as achievable. This is because it requires a very aggressive R&D policy, leading to the implementation of radically novel technologies, along with other economic, fiscal, or statutory conditions that, according to the report, are "unlikely to occur."

Even so, experience in the U.K. in 1985-95 demonstrated that technological innovation and favorable taxation can very much affect production.

In this "ideal" case, reserves would be 88 billion bbl of oil and 70 billion boe of gas. Production in 2010 would be an additional 6.5 million b/d of oil and 2.3 million boed of gas compared with the low-tech scenario.

Service/supply industry

Currently, Europe's oil field service/supply industry is the beneficiary of 70% of the annual operating and capital outlays in the North Sea. This sector employs 330,000 people, both directly and indirectly.

The North Sea is responsible for about half of the activity of Europe's service/supply industry. In addition to being the world's preeminent offshore area, the North Sea also has been a major technological showpiece for the petroleum industry, with the highest recovery rates in the world.

It is also in the North Sea that greenhouse gas emissions linked to production are the lowest: one third of those in the U.S. and one fifth of those in Russia, per oil equivalent barrel.

A sustained R&D policy will be carried out by the service/supply industry, as it increasingly takes over the E&P business from oil companies.

The ENeRG report stresses the important financial contribution of the EC to the technologies developed by the service/supply industry. In the 1970s and 1980s it attributed about 100 million ecus/year to hydrocarbon research. But it has considerably reduced its financial support for the sector.

During the EC's 4th Framework Programme (1992-98), it allotted only 110 million ecus-an amount "not sufficient to have any impact," according to the report, which points out that, by comparison, the U.S. Department of Energy devotes over $200 million/year (183 million ecus/year) to hydrocarbon research.

The report argues that, if Europe is to maintain its competitiveness, ensure supply security, protect the environment, win new markets, and increase jobs, the EC should provide 500 million ecus for the next Framework Programme. This is the amount needed to achieve the "probable scenario."

If this were to happen, the volume of business for the service/supply industry would soon stabilize at about 30 billion ecus/year before falling to 28 billion ecus in 2010. This would mean a cumulative increase of 110 billion ecus. And 130,000 jobs would be created, making the sector's employment level at 380,000 by 2010.

If the low-tech scenario were maintained, the report reckons that the volume of business would fall gradually to 18 billion ecus in 2010, and jobs would be cut by 25% to 250,000. In the ideal scenario, 122,400 jobs would be created.

IFP General Manager Olivier Appert is confident that, if the probable scenario were achieved, the North Sea would regain its role as a technological showpiece, which it is now gradually relinquishing to the Gulf of Mexico.