Monday 8 March 2010

The Russians, and Even Gordon Brown, Know Better Than This

Prof Peter Odell is a “respected oil academic” and “adviser to the Opec oil cartel”. Say no more, you might respond, and indeed he’s been on the wrong side of an awful lot of debates. Now – well, judge for yourself.

"Ministers must wrench back control of oil and gas production from the private sector if Britain is to maximise the value of the remaining reserves in the North Sea. 'UK oil and gas production has been steadily declining since 1999. The reason is that the UK government, unlike those of most other countries, has abandoned oil and gas production to the private sector … The government should [set] up a hydrocarbons authority, which would initiate new private-public partnerships to engage in offshore oil and gas production' – modeled on Norway’s Petoro."

We know that Opec likes arguments for state control Prof, but don't expect this one to float in our waters. The evolution of the North Sea oil & gas industry has not been without a few false steps, but by and large (once WedgeBenn was sidelined by Harold Wilson) it has been a triumph of the private sector. Its major early developments were undertaken by the mega-companies – primarily BP, Shell, Conoco, Phillips and Amoco, with big roles by another dozen or so – but as the patch fell into inevitable decline, these firms sold on to specialist scavengers that you’ve never heard of, whose only motivation is to exert ingenuity, effort, technology, innovation and enormous attention to detail, to squeeze out the last remaining economic barrel and cubic foot. And that is what they are doing, with signal success.

To suggest that detailed governmental interference at the level of individual fields, will maximise recovery from these fields, flies in the face of all experience. References to Dutch and Norwegian policies are laughable: the Dutch situation is very extreme and very different (an entire economy dependent on a single gigantic gas field): and I am not aware of any suggestion, let alone demonstration, that the clumsy Norwegian model has achieved anything remotely optimal.

The biggest counter-argument comes from the very recent phenomenon of shale gas. Known about, but neglected, by the big companies for decades, it was only when maverick niche players got stuck in to the challenges, that this untapped resource turned around America’s declining gas output and (coupled with the recession) caused the very significant gas surplus that we’ve lauded many times before on this blog for its beneficial consequences across Europe as well as North America.

Finally, the Russian government is toying with ways of introducing the North Sea model - i.e transferring operatorship away from large traditional enterprises (Gazprom this means you) to smaller, specialist scavenger companies - for its large and declining mature oil and gas fields ! The lesson has not been lost on them, even if it has eluded the Professor.

Not even Gordon Brown is interested in Odell's statist views.



CityUnslicker said...

quite. Ithaca Energy is part of my portfolio and ius a North Sea tiddler doing very well.

Unknown said...

Good stuff ND. As I work in this sector, the prospect of it being either State-run or PFI fills me with dread. There are already plenty of hoops to jump through to get anything done, and enough people unwilling to take decisions & accept responsibility.

I shudder to think what it would be like if Prof. Odell got his way!

Dick the Prick said...

What a gibbering loon. I know that there's always been a bit of a conspiracy theory about the Falklands conflict being all about oil - (go to war over oil - that couldn't possibly happen could it??) but the chaps setting up a rig there are absolutely awesome. Can you imagine government lackeys volunteering for that gig? I should coco

And these niche firms have massive value added as their technology doesn't just stimulate the extraction/commodities markets but gets used in pharmocorp's industries as well.

Ooohh - got steadily angrier as rant went on.

Nick Drew said...

glad we are all agreed !

thanks Graeme, & welcome

(used to work there meself many moons ago)