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Charles Hendry - on UK government's oil and gas strategy

Thursday, May 10, 2012

Charles Hendry, UK minister of state for energy, gave a round-up on the UK government's current activities with oil and gas, speaking at a Lloyd's Register press conference on May 9

'We don't think the role of gas has been sufficiently clear,' said Charles Hendry, UK Minister of State for Energy and Climate Change, speaking at the Lloyd's Register press conference in London on May 9th about the UK government's perspectives towards the oil and gas industry.

'We are in the process of developing a gas generation strategy, looking at what we need to encourage new gas plant.'

'The earliest we can have a new gas plant is 2019.'

The earliest we can have a plant with carbon capture and storage is in the 2020s, the earliest we can have large scale wind is in the 2020s. But the energy pinch point is 'coming before that,' he said.

'We need to see more gas coming through but in a way which takes account of our low carbon obligation.'


North Sea

For North Sea oil and gas operations, the UK government has refocused 'PILOT', a scheme to help the UK government work together with the UK Oil and Gas industry.

'It used to be a talking shop which met and forgot what it was talking about 6 months before,' he said.

The government likes the fact that technology being developed in the North Sea is being sold around the world. 'One of the biggest benefits we have as a mature basin is we're dealing with the problems of a declining basin earlier than others,' he said.

The UK has a third of the £18bn market for subsea equipment, he said.


Safety

Both government and industry have changed the way they look at safety following Macondo, he said. But the biggest safety improvements were actually made following the Piper Alpha disaster in 1988, he said.

There have been comments from US regulators that maybe the US should look more at how safety is managed in the North Sea, he said.

'It's not a tick box approach to regulation. We have constant improvement. Find and influence best practise.'

After the Macondo disaster, the oil and gas industry developed 2 capping devices which can be deployed within hours, he said.

Also industry has led efforts to improve safety standards following the North Sea helicopter crash of April 2009 (due to a maintenance error), he said.


EU regulations

Mr Hendry expressed concerns about proposed EC regulations or directives about offshore safety. The UK safety regulation is good. 'Tinker with that at your peril,' he said.

There are risks in replacing the regulations with other ones, including the interim time when people might not know which regulations they should be following.

'We'll continue to make the case with our European partners,' he said.

A specific concern is whether the EU makes a 'directive', which is guidance, or a 'regulation' which must be followed, he said.


Shale gas

The UK government is paying close attention to the shale gas development in the US but acknowledging the differences with the US and UK, he said.

'The US gas price is 1/7th of that of Asia - this is a driver of economic activity,' he said.

'But there are fundamental differences between the US and here.'

'In US you own resources beneath your home, here you don't. You have to get permission from landowners.'

Also Brits shouldn't expect a reduction in gas prices if there is a shale gas boom. ''We're part of an integrated market. The price benefit to us would rapidly be removed. Gas would flow out of the country until the price equalised.'

'I think we need to have a sense of realism, and we'd only go forward when we have a sense of safety.'


Carbon capture

With the Longannet (failed carbon capture project), 'we tried very hard to reach agreement with industry and ultimately it wasn't possible,' he said.

It was an 'old coal plant which needed hundreds of millions of pounds of investment,' he said.

'The new (carbon capture competition) is fundamentally different,' he said. 'We're looking at gas.
There's a billion pounds of capital, and £125m on top of that (for investment in technology).

'We want to move from being a series of pilot projects to an industry.'

The idea is that people investing in CCS plants will know what return they're going to get, he said.

The government is interested in using carbon capture and storage together with enhanced oil recovery (EOR) but needs a better understanding of how the carbon dioxide would actually be stored permanently, he said.

'We haven't ruled it out. We're looking for an end to end solution.'


Summary

'We're looking holistically,' he said in summary. 'I think this is the closest we've had to an energy policy in years.' The energy industry before 'didn't deliver the right amount of investment we needed.'



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