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Sea Change
Costs Mount for British Offshore Production

The UK’s North Sea oil production is on a steady decline, as formerly booming fields mature and the infrastructure put in place to tap them falls into disrepair. The slow demise of this resource is having a negative impact on Britain’s energy balance sheet, as more imports are required to make up for declining domestic production, but there’s another important cost to consider: decommissioning the offshore North Sea infrastructure is an expensive process. The New York Times reports:

Royal Dutch Shell is beginning to decommission and dismantle its installations in the Brent field, which has produced nearly 10 percent of all the oil and gas extracted from British waters and gave its name to the most important globally traded blend of crude. […]

Wood Mackenzie forecasts that the oil industry will spend £15 billion over the next decade on decommissioning in Britain, and that by the early 2020s, annual costs for dismantling fields may exceed new investment. As recently as 2013, the industry spent about £900 million on decommissioning while investing more than £14 billion in British waters.

While the U.S. and even to some extents the global oil market deal with issues of over-supply, the UK is being hit with a double whammy of sorts in the North Sea. We’re only just now starting to see those costs manifest themselves, and it’s only going to get worse as the offshore drawdown continues.

Britain has plenty of unexplored onshore hydrocarbons; its geological service estimates that shale deposits contain 1.3 quadrillion cubic feet of natural gas. Local protests and a fractious political climate have so far stymied efforts to get commercial production of those reserves up and running, but as the UK’s offshore holdings continue to dry up, so to speak, its fracking opportunities are going to look better and better.

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  • Jacksonian_Libertarian

    It would be easy to get the UK’s oil shale developed, just give the mineral rights back to the land owners. You would see drilling begin almost overnight, as land owners cashed in on development. The greedy UK government will never do the right thing though.

    • f1b0nacc1

      The UK’s suboptimal geology makes this a bit problematic, but overall I have to agree with you here. As long as the mineral rights aren’t held by the land owners, they have no real incentive to support fracking, and an almost endless number of reasons to oppose it. This is a huge problem for fracking in most countries, particularly China (which actually has substantial reserves that are suitable for exploitation), and will likely block production in these countries for a long time to come.

  • rheddles

    I thought the political climat4e was anti-fracking.

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