UK Oil & Gas Industrial Strategy – It’s good to talk.

The Government’s latest attempt at a strategy for oil and gas was published in March but its impact was somewhat diluted by the announcement on the same day of yet another change of Energy Minister. 

The poor bloke that drew that particular short straw for the least stable post in the government is now responsible for implementing the new strategy, such as it is.

Apart from a few changes and some minor additions it’s actually pretty much a repeat of the report published by the Oil and Gas Industry Taskforce back in 1999 although actually the 1999 version was a bit more detailed particularly when it came to things like technology needs.

This new strategy includes all the usual guff about maximising the “economic production of the UK’s offshore oil and gas resources” and all the other motherhood and apple pie phraseology designed to make us think Westminster actually cares about more than how much tax they can squeeze out of the industry to pay for all the other messes they’ve created.  

For example, one of the aims is “to sustain and promote the growth of the UK industry’s supply chain, in both domestic and international markets”. That’s an interesting turn of phrase. It’s the UK industry’s supply chain not the UK supply chain.  So that includes both indigenous and foreign owned companies which is probably recognition of the extent to which the industry is now dominated by overseas companies.   It goes back to the eighties doctrine of the “level playing field” which was really all about getting as much oil and gas out of the ground as fast as possible in order to fill the Treasury’s coffers and not caring who did it.   

As with all good initiatives it’s important to establish new bodies which can provide an opportunity for the great and the good to be seen to be doing stuff. That’s until they get bored or move on or have collected their OBE.  True to form we now have an “Oil and Gas Industry Council” to carry forward all the recommendations arising from the strategy document. Where does that leave PILOT which was created in 1999 to do the same thing?  To wither quietly on the vine I would guess.

OK – I admit I’m being more than just a tad cynical here primarily because I don’t think the 1999 O&G Taskforce led to any great improvements and I certainly don’t think it led to the much vaunted advances in technology that were talked about being desirable then and indeed are still being talked about as desirable now.

Let’s look at one particular and actually very scary statistic. According to the strategy report the overall sector R&D spend in the UK is reported to be 0.3% of sales which is a shameful figure when compared to Norway’s figure of 4%.  So this aspect of the 1999 Taskforce’s master plan failed miserably much as many of us involved expected it to.  

One action arising from the new strategy’s technology plan is the establishment of “a national centre of excellence that will enable industry to better understand complex reservoirs, reduce drilling costs, improve offshore efficiency, enhance production and maintain the integrity of infrastructure.”

The Government has now done that.  It will be established at Newcastle University. Why Newcastle?  I’ve no idea. Anyway it doesn’t really matter as it seems the Government is only coughing up £7m for this “centre of excellence”.  So – it looks like just another example of Westminster “tokenism”. 

The strategy also says “The UK has very strong financial services and oil and gas sectors. The two should be working closely together to create growth.”   This would be novel because for the past 30 years or so the only growth the financial sector has been interested in is their own.  Expecting the financial services sector to invest more in the supply side is very wishful thinking especially now they are under so much pressure to increase their capital reserves.    

So what’s the answer?  Well, there isn’t one.  We can’t force either the operators or the largest contractors/manufacturers to fund or invest in UK R&D if they don’t want to nor can we force investors to cough up more to grow companies through product or service development.

That said the fact is that Norway’s R&D level is much higher because they have a larger number of technology companies and they have a national champion to work with namely, Statoil.

Neatly linking this to the recent demise of Margaret Thatcher we should recall that she privatised the UK’s national champion the “British National Oil Company” which was then renamed Britoil Plc and later sold off to BP allegedly for peanuts.   

It was claimed Thatcher did this to ensure foreign operator investment in the N Sea. It was a lame excuse because investment in exploration and production in the Norwegian sector of the N Sea has been at least on a par or better than investment in the UK sector but investment in the Norwegian supply side has been of an order of magnitude considerably higher.  There can be little doubt that the BNOC decision wasn’t thought through and like a lot of others was purely ideological.

So do I expect this new strategy to achieve real results?  No I don’t and my reason for saying that is that the one thing that would really make a huge difference isn’t even mentioned. No – it’s not set up a new state oil company although that would be a great idea and neither is it to introduce “informal” targets for genuine UK content.  The one thing that would make a genuinely huge difference is to introduce tax offsets on drilling costs as the Norwegians have.  But that’s probably a step too far for a Government that’s essentially bust and needs the oil and gas tax revenue more than it ever has before.

(First published in the Aberdeen Press & Journal's "Energy" supplement in May 2014)