£750bn oil reserves remain untapped under North Sea

A POTENTIAL prize of £750 billion in unrecovered oil and gas reserves is in the North Sea and the Atlantic frontier west of Shetland, industry leaders said yesterday.

But they warned that without new technology and investment incentives from the government, the reserves will never be recovered to boost the ailing British economy.

Under the current fiscal regime and investment plans, only around ten billion barrels of oil and gas stand to be recovered over the next two or three decades.

However, the latest economic report by Oil and Gas UK, the pan industry trade body, claims a further 15 billion barrels or more could be pumped from the UK Continental Shelf. That equates to almost half that extracted from the North Sea so far.

Malcolm Webb, the chief executive of Oil and Gas UK, said: "Barrels left in the ground do not pay taxes, do not sustain jobs, do not help secure the nation's energy supply and provide no support to the country's balance of payments. While we may have produced nearly 38 billion barrels of oil and gas over the last 40 years, the UK still has substantial oil and gas potential.

"It is estimated that somewhere between 16 and 25 billion barrels of oil and gas remain to be recovered."

A spokesman for the Department of Business, Enterprise and Regulatory Reform said: "Our estimate is also between 16 and 25 billion barrels in normal circumstances.

"It is the most probable extent of the reserves but there is a potential high of 39 billion barrels based on various figures we have, to do with undiscovered resources, potential resources and current reserves."

Mr Webb added: "Plans currently in place should reach about 10 billion of those barrels so the challenge in the hands of the government and industry is how to achieve the remaining 15 billion barrels.

"While realising this goal will require massive further investment from the industry, at $100 per barrel it is worth $1.5 trillion to the British economy and this is a prize which the country should not contemplate losing.

"There need to be targeted incentives for companies wishing or willing to invest the very, very considerable sums that are going to be needed to get up to that 25 billion target but, my word, that is a target worth going for."

The latest economic report, however, reveals the cost of producing a barrel of oil or gas in the UK Continental Shelf has continued to soar to record levels.

Oil and gas prices have trebled in the past seven years but the cost of "developing" a barrel of hydrocarbons has risen fivefold while the operating cost per barrel has doubled. The report also reveals money spent bringing new reserves into production fell from £5.5 billion in 2006 to £4.9 billion in 2007.

The industry is expected to submit its detailed proposals to the Treasury for changes in the fiscal regime within the next few days. Mr Webb said: "What we are looking to government to do is to give further encouragement and incentives to those companies willing to invest.

"So we are suggesting that they need to have further targeted incentives in the form of uplifted capital and balances."

According to industry leaders it is also vital to "find the right economic way" to unlock the potential of the reserves west of Shetland, where there are believed to be between four and six billion barrels.

But new technology will have to be developed to explore and develop the Atlantic frontier fields and there is no gas infrastructure in the area.

FACT BOX

• OIL was discovered in the North Sea in 1966, with the first year of full production taking place in 1976.

• The city of Aberdeen became the centre of the North Sea oil industry and today it promotes itself as the "Oil Capital of Europe."

• The oil and gas supply chain in the north-east of Scotland is estimated to be worth about £15 billion a year to the nation, with some £4 billion of that related to export activity.

• Latest figures suggest that the north-east currently supplies around three-quarters of the UK's primary energy demand.

• The UK is the world's 12th largest overall producer of oil and gas.

• The oil industry in the North Sea is estimated to support some 40,000 jobs.

• The oil boom is the main reason why the average weekly earnings in Aberdeen, at £606.30, are roughly 20 per cent higher than the Scottish average.