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Shell – ‘risk-free’ North Sea still vital

The Scotsman

Published Date: 22 December 2008
SHELL’S UK chairman has pledged the oil major’s continuing commitment to the North Sea despite his belief that more than half the area’s natural reserves have been produced.
James Smith told The Scotsman that the fact that there was still a “low risk” in operating in the North Sea compared with some regions of the world also remained a big plus for the major explorers.

Smith said the oil industry has produced nearly 40 billion barrels from the North Sea since the exploitation began off the east coast of Scotland the 1960s. 

He said there had been an annual decline of nearly 10 per cent in production from the area in recent years, although 2007 was a better year for oil when a large new field came on stream.

But he added: “I think it will be 20 to 30 years before North Sea runs out. Having started there in the 1960s and 1970s, although there is still a lot to be produced, we are beyond the halfway mark.

“But oil companies also look at the political risk and the risks in the North Sea are low. It is still a very important place to be, declining but still a significant part of our portfolio.”

It has been asserted that the big companies were pulling out of the North Sea, leaving the extraction of the remaining oil to smaller operators. But Smith’s comments echo those of Trevor Hatton, MD Scotland for Accenture, the management consultancy employing 250 in Aberdeen.

Hatton recently told The Scotsman: “There is no evidence of the supermajors leaving. The North Sea, compared with the rest of the world, still looks risk-free. There are severe political risks elsewhere.”

On the wider energy backdrop, Smith said he was also very encouraged by new US President Barack Obama’s promise to cutting US carbon emissions 20 per cent by 2020 and 80 per cent by 2050.

Smith said there now appeared to be a “phenomenal opportunity” to make headway in this area if the politicians across the world stayed united and countries co-operated. He added: “That is the sort of thing the British government is talking about. The technologies are there to get it done, and the economic instruments are there to get it done. I’m optimistic if the politicians can deliver.”

He said that one possibility would be standardising international rules on carbon emissions and carbon markets. 

An example of that would be the joining of carbon markets of Europe, Australia and other emerging carbon markets like North America.

Smith spoke about the series of “energy scenarios” Shell has developed which try to predict what will happen worldwide in the energy market in the future.

These range from the “Goldilocks ideal outcome”, where all nations work fully together for common good to the “scramble scenario”, where it is every country for itself in the competition for energy security. 

The company believes that the most likely outcome is one in between the two, called a “blueprint scenario”, where there is enough co-operation between countries to ensure that there is a stable world market and a new focus on the environment.

Most analysts agree that the “scramble scenario” would be disadvantageous for worldwide economic prosperity.

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