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Debate Pack: Potential role of UK manufacturing in development of onshore oil and gas

Debate packs are produced by the Commons Library quickly after the announcement of parliamentary business. They are intended to provide a summary or overview of the issue being debated and identify relevant briefings and useful documents, including press and parliamentary material. More detailed briefing can be prepared for Members on request to the Library.

Onshore oil and gas industry in the UK

The onshore oil and gas industry is well established in the UK, having focused on exploiting conventional oil and gas fields. The industry is now in a phase of exploration for unconventional oil and gas. This includes using of hydraulic fracturing (or fracking) for the exploration of oil and gas shales as well as coal bed methane (CBM) extraction. At the same time, while the oil prices remains low, more costly offshore oil and gas exploration and production faces financial difficulties.

Information on the onshore oil and gas sector including the onshore regulatory framework is set out in the Commons Library Briefing Paper Shale Gas and Fracking

The UK Onshore Oil and Gas trade (UKOOG) association state there are:

Around 2,000 wells have now been drilled onshore in the UK with about 10% of them having been hydraulically fractured. There are currently around 120 producing sites with 250 operating wells producing between 20,000 and 25,000 barrels of oil equivalent per day. Approximately 250,000 barrels per day of produced water is disposed of safely under permits from the EA and SEPA.

The Government states:

“…there is a national need to explore and develop our shale gas and oil resources in a safe, sustainable and timely way…”

Onshore petroleum resources

Shale beds are not found all over the UK. A report for DECC by the BGS on the Unconventional Hydrocarbon Resources of Britain’s Onshore Basins – Shale Gas shows the British formations with most shale gas potential. The British Geological Survey (BGS) in association with the Department of Energy and Climate Change (DECC) has completed shale resource estimates for several areas in the UK. For more information follow these links:

New Licensing Round

On 17 December 2015, the Oil & Gas Authority (OGA) announced that new licences for a total of 159 blocks were formally offered to successful applicants under the 14th Onshore Oil and Gas Licensing Round. All the licence blocks are mapped out on the OGA’s interactive map.

According to UKOOG there are currently 230 onshore licences, covering 529 blocks. The 14th Licensing Round was announced on the 17th of December 2015 with the award of 159 new blocks under 93 new licences.

Holder of licences are able to exploit oil and gas (petroleum) resources in the area defined by the licence. However, before licensees can do this, a numberof other permissions and permits are required.

The onshore licencing process is to be devolved to Scotland under the Scotland Bill currently going through Parliament. In addition, the Scottish and Welsh Governments have indicated that planning applications for shale gas developments should be refused. Competency for planning policy is devolved to the Scottish and Welsh Governments. 

Manufacturing for Onshore Oil and Gas

Onshore oil and gas operations use rigs, casing, pipework and other components in the drilling, and stabilization of wells.

Specialist equipment is also required in the transportation of materials, both during the drilling (and fracking) phase and during the recovery phase.

A number of assessments have been made of the economic potential of shale gas operations. These estimates do vary and uncertainties around the volumes that could be commercially extracted remain.

In October 2011 Cuadrilla published Regeneris Consulting’s full economic assessment of the impact of shale gas exploration and production in Lancashire and the UK.  This estimated that for test wells alone:

  • A single test well operation, in 2011 prices, costs in the region of £10.5 million, made up of Cuadrilla’s own costs, that of its two internal service companies and expenditure on a range of first tier suppliers.
  • Some 18% of expenditure was shown to be deployed on Lancashire workers/suppliers, with a third going overseas. Of all UK expenditure (circa £7 million per test well), a third was deployed on labour costs, with 7% being utilised for subsistence expenditure of workers most of which flows to Lancashire businesses.
  • It was estimated the test well activity would support some 250 FTE jobs across the UK over a 12 month period. Half of the jobs would occur within Cuadrilla and its extensive range of 1st tier suppliers.
  • Some 15% of the jobs (circa 40) were estimated to be taken by Lancashire residents. … At this stage very few of the specialist supply chain contractors make extensive use of local labour although this would change under a full commercial extraction scenario. [1]

Cuadrilla’s report estimated that test well activity might support 250 FTE jobs across the UK over a twelve month period. Also at the UK Level, the estimated FTE employment impact peaks at some 5,600 FTE jobs in the period 2016 through to 2019, with a build up in the years from 2013 onwards, if there is a move to a commercial extraction phase.[2]

A May 2013 report from the Institute of Directors presented a scenario where UK shale gas production attracts investment of £3.7 billion per year and supports up to 74,000 jobs, often focused in regions with currently high unemployment and in sectors such as manufacturing. It also potentially contributes significant tax revenue.[3]

The Strategic Environmental Assessment written by AMEC for the UK Government, in December 2013, estimated that at its peak, some 16,000-32,000 full time positions (including direct, indirect and induced jobs) could be created. This would represent an increase of between 3.5% and 7% in the level of employment supported by the UK oil and gas industry sector. It added the potential for these jobs to directly benefit those local communities in which sites are located would depend on the balance between skilled and unskilled construction and oil and gas posts required and the availability of individuals in the local labour market with required skills and relevant experience.

An April 2014 report by EY, which was commissioned by UKOOG said the industry will need to spend about £33bn in order to drill up to 4,000 horizontal wells over an 18-year timeframe. It also made a number of recommendations for developing supply chain capabilities. These were summarised in Lord Smith’s Task Force on Shale Gas report from December 2015, on Economic Impacts:

  • UKOOG should work with the supply chain components to gain a common understanding of requirements, identifying in particular research and development needs
  • Expanding the Fabricators’ Directory to include detailed specifications of components required for onshore shale development and to promote UK suppliers domestically and abroad
  • Capitalising on existing government schemes such as the Manufacturing Advisory Service to raise awareness of the supply chain opportunities for existing businesses
  • That the government, UKOOG and supply chain firms work together to build an investment case for the development of UK based capabilities, including recommendations of bridging finance options
  • Innovate UK to identify where there are opportunities to develop and deploy new technologies
  • Government to review early stage financing options, including inward investment

A July 2014 report, Potential Economic Impacts of Shale Gas in the Ocean Gateway, published by Amion Consulting and commissioned by IGas Energy and Peel Environmental This found that if 30 shale gas production sites were developed £9.8bn would be invested between 2015 and 2035. A total of 3,504 jobs would be supported in peak years in the area as well as 15,542 roles across the UK as a whole. It said that over the next 15 or so years, Britain would need to spend £17bn on specialised fracking equipment and skills, £4.1bn on waste, storage and transport and £2.3bn on steel. It also said there was potential for a new £1.6bn rig manufacturing industry, to provide the 50 rigs required as shale exploration reaches its peak.

[1]           Regeneris Consulting for Cuadrilla, Economic Impact of Shale Gas Exploration & Production in Lancashire and the UK September 2010 published 5 October 2011

[2]     Ibid, p.44

[3]     IoD, Infrastructure for Business: Getting shale gas working, 22 May 2013


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