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Storm clouds gather over the West of Shetlands, Britain’s last gas frontier

Times Online
June 28, 2008

Storm clouds gather over the West of Shetlands, Britain’s last gas frontier

Oil rigs

The Prime Minister wants complex infrastructure programmes to go ahead but the oil companies are reluctant to build new rigs

A dispute over costs and taxes is hindering a huge offshore gas development that could bring fresh fuel supplies to Britain.

The argument over the exploitation of gasfields in the West of Shetlands area reveals sharp differences between the oil industry and Whitehall over the prospects for big oil and gas discoveries in British waters.

Two gas finds by Total, the French multinational, and another by Chevron are at the centre of a debate over the development of infrastructure in the Atlantic Margin between the Shetland Islands and the Faeroes, an area of deep water and violent storms where exploration is expensive and dangerous. Eight men drowned last year when a tug capsized during work on the anchor of a drilling ship.

The Government is keen to see major infrastructure, including offshore platforms, developed to exploit existing and future gas discoveries, but some oil companies, including Total, have doubts about the prospects for big finds and want a lower-cost development.

At a meeting with the Prime Minister in Aberdeen last month, the French company expressed its scepticism over the likelihood of big discoveries in the West of Shetlands region. According to estimates by the Department for Business, Enterprise and Regulatory Reform (BERR),

4 billion barrels of oil and gas could be extracted there, almost a fifth of the total left on the UK continental shelf. However, Oil and Gas UK, the North Sea oil industry association, reckons the figure is more likely to be between 2 billion and 2.5 billion.

Gordon Brown has made energy a priority for his Government and in April encouraged BP and Shell to spend more in the UK. “We do need the oil coming out of the North Sea; we do need to encourage the new exploration,” he said. “That is more expensive to do. That is why I hope that these profits are going to be invested in getting more oil out of the North Sea.”

The conservative industry view of the Atlantic Margin’s prospects was confirmed by Michel Contie, Total’s senior vice-president for Northern Europe. “We are doubtful,” he said. “This is not the North Sea. We don’t expect to find Brent or Forties.”

The West of Shetlands Task Force was established in 2006 by BERR and led by Dong, the Danish oil company, with the aim of agreeing the most appropriate gas infrastructure. However, the task force has failed to agree a solution. About 2 trillion cubic feet of gas is available, according to BERR, but it is scattered over a wide area. Key to the debate are Laggan and Tormore, the Total finds that could produce up to 90,000 barrels per day of gas, and Rosebank, a third discovery by Chevron.

Total favours a low-cost development, involving sub-sea wells and a gas pipeline to a processing facility at Sullom Voe on Shetland. From there the gas would be piped to St Fergus on the mainland. However, the Government is believed to favour a large piece of infrastructure, such as a floating deepwater offshore platform, a structure that could cost upwards of $1billion (£500 million).

Total already expects to invest about $4.5billion in its two gasfields and is reluctant to commit to more without a promise from the Government to extensive tax breaks or other subsidies. “This is not a giant field. We cannot afford to overinvest,” Mr Contie said. “We want nothing offshore, no platform, because of the difficult environment and because we don’t need it.”

Total wants a quick decision. It reckons that its gas could come ashore by 2012 if it begins work immediately, but the Government is keen that a tender be conducted among the West of Shetlands operators to determine whether there is an appetite for investment in a large piece of infrastructure. Total is happy to consult but fears further delays. A big offshore platform would require at least an extra year of construction.

Laggan, the probable site of such a platform, lies in water depths of more than half a kilometre. Huge waves and powerful sub-sea currents make work in the area difficult and drilling operations are restricted to three months in the summer.

Output path

1965 
First gasfield discovered by BP at West Sole

1969 
First oil found in UK waters by Amoco

1977 
Oil found in West of Shetland

1978 
North Sea oil output a million barrels per day

1999 
Oil production peaks at 125 million tonnes

2000 
UK gas production peaks. It has declined by about 2 per cent a year since

Source: Oil and Gas UK

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4227674.ece

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