After Scotland's decision the future looks brighter for the North East

Friday's Journal features our latest supplement - the North of England Energy and Offshore Report - focusing on one of the region's most important industries. Peter McCusker looks ahead to this publication

Andy Buchanan/PA Wire An oil rig in the North Sea
An oil rig in the North Sea

In recent months the North Sea oil and gas industry has suffered from a bout of indigestion with exploration levels falling to record lows and £20bn of potential investment being put on hold.

Many in the industry say the uncertainty caused by the Scottish Independence Referendum had sapped confidence from operators on the United Kingdom Continental Shelf (UKCS).

With the future of the Union now secure the supplement looks in detail at what the experts anticipate will happen in the North Sea oil and gas industry over the coming months.

The general consensus is that with a possible additional 16 to 24 billion barrels of oil and gas equivalent left to recover – on top of the 40 billion barrels already recovered - the future is looking bright.

Richard Cockburn, a partner in law firm Bond Dickinson, with offices across the including in Aberdeen and Newcastle says: “Almost half of oil and gas firms (45%) had reported that the Scottish Referendum process was impacting on plans and investment proposals.

“The firms seemed to be more concerned about the uncertainty rather than the outcome itself (but) we would expect that a number of stalled investment plans will come back on stream.”

Accolade Photography OGN Group
OGN Group
 

Prior to the Referendum vote Dennis Clark, chairman of Newcastle fabricators the OGN Group, highlighted how it had led to delays in the placing of hundreds of millions of pounds of potential contracts.

He says: “It’s too early to predict whether there will be change in investment patterns following last week’s vote, however a speedy conclusion of the fiscal review and the No vote are crucial to future confidence.”

Earlier this year the Government-commissioned Wood Review set out measures aimed at maximising the recovery of the remaining reserves.

One primary goal of the Wood Review is to encourage greater collaboration between operators and this is to be achieved by appointing a new regulator – to be known as the Offshore Gas Authority - to oversee the industry.

George Rafferty, chief executive of Durham-based NOF Energy, which has over 500 member companies in the oil and gas supply chain, would like to see the regulator appointed post-haste.

He says: “The regulator will aim to deliver increased collaboration between the operators and the contracting community, but it shouldn’t stop there.  A diverse, skilled and innovative supply chain offers tangible added value to the oil and gas sector and closer relationships between operators, contractors and suppliers will better serve the wider interests of the industry.”

Ian McClelland Photography Ltd George Rafferty, chief executive of NOF Energy
George Rafferty, chief executive of NOF Energy
 

With hopes of a renewed bout of investment in the North Sea we focus on how firms in the North East subsea industry are maintaining and developing their world-leading presence.

Technology developments are at the heart of the region’s success in the global subsea industry and we highlight some of the great new products coming out of Tyneside’s subsea companies.

Tony Trapp, who helped launch the region’s first subsea company SMD almost 30 years ago, has been instrumental in the growth of the subsea industry in that time.

Trapp, who later founded and sold The Engineering Business and two years ago, launched Osbit Power, says: “In the last 10 years the North East offshore sector has come on incredibly. The sector is booming.”

Newcastle company Five-Quarter is also looking to the North Sea for business opportunities. This time it’s aiming to access the coal reserves off the North East coast using its low-carbon Deep Gas Winning process.

Harry Bradbury, chief executive officer of Five-Quarter, says the syngas it will produce can be used to create electricity, or as a raw material for industries such as those in the Teesside chemical cluster.

Bradbury believes there may be less than a decade to save these industries from the effects caused by cheaper energy and raw material costs in North America, in particular. He contends that as a country we will need to use fossil fuels for some time to come.

He says: “If the Five-Quarter project is successful the biggest users of the gas produced will be Teesside’s petrochemical, commodity chemical, steel industries and energy producers.

“These process industry companies are encouraging Government to pursue unconventional gas production, both from underground coal gasification and fracking because it gives the UK some control over its energy costs.

“Our society is totally dependent on energy-intensive manufacturing industries. It is these industries that provide our dwellings, our warmth, our food, our transport and our entertainment. All of these are based on carbon and always will be.

“The way we see it is that we will not be able to provide all of the needs of the UK energy system by using renewables, geothermal energy and ground source heat pumps.

“If climate change is the problem than why not use energy from fossil fuels that does not have a negative impact on the environment.

“Coal is not the problem in itself but it’s the manner in which we use it. There is so much energy in coal that is we can find a smart way to use it without releasing CO2 into the atmosphere then why not use it.”

“We need to have a fossil fuel solution to the raw materials issues. The resins, polymers, and plastics that are vital to industry all come from natural gas and petroleum products, and we will never be able to get these from renewables.

“The chemical and process industry in the UK is worth some £60bn to the economy, is a strategic exporter and provides 170,000 direct jobs, with a further 500,000 indirect jobs.

“We cannot continue to operate as an advanced economy, to keep the lights in and support our industries and the people they employ, without continuing to use fossil fuels for some time to come.

“We are still nowhere nearer being able to developing a totally renewable energy future.”

Mountains of coal pieces being stored for shipping
Mountains of coal pieces being stored for shipping
 

One renewable energy – offshore wind - which was expected to create hundreds of jobs in the North East has yet to take off in the way expected.

We take a closer look at this industry and look at why it has failed to reach the momentum initially envisaged.

With more and more renewable power coming on the National Grid and lots of the country’s coal-fired power stations closing down there are growing concerns over potential black outs this coming winter.

Tomorrow’s North of England Energy and Offshore Report looks in greater detail at these issues.

One European country which is leading the way in the green energy transition is Germany, and we have a special report on its energy policy featuring comments from one of its most senior UK diplomats.

Stefan Kordasch, economic affairs and policy attache at the German Embassy in London says: “If you think UK energy prices are too high then you are mistaken.”

He went on to highlight how households and businesses in Germany are paying almost twice as much as we do in the UK.

Ian Burdon, chairman of the North East Energy Leadership Council, who listened to the address, described the Germany energy revolution as ‘risky’.

“Germany is essentially the manufacturing capital of the world and these policies may well be killing the goose that lays the golden egg,” he said.

Professor Phil Taylor, director of Newcastle University Institute for Sustainability, shares his own assessment of UK energy policy.

He says: “Most people in the UK think energy is too expensive and for some in society this is true, but it could be argued that for the majority it is actually too cheap.

“Policymakers and energy providers need to do more to understand how and why customers use and generate energy, so they can look at ways to enable behaviour change and reduce demand on the network in peak times.”

Kevin Gibson Photography Ltd Dr James Martin
Dr James Martin
 

While many had hoped to see more rapid progress with a UK shale gas industry some North East companies are making their mark in the US industry.

We report on how North East’s largest privately-owned industrial conglomerate the Reece Group is currently working on new technology for a UK shale industry.

It is also targeting the US shale industry where supply chain capacity constraints mean there are significant opportunities for agile North East companies with the right products.

If successful it will join the growing ranks of North East companies finding work in US shale oil and gas.

James Martin, managing director at Reece Innovation which is a division of the Reece Group, says: “If we cut our teeth by aiming at the US supply chain it will give us a much greater understanding of what we need to do in the English market and this will help as the shale gas industry spreads to Europe and across the globe.

“The United States fracking industry has severe supply chain problems and manufacturing capacity issues and this is presenting some significant opportunities for the North East.”

The supplement continues to be well supported by our energy supply chain companies and their advisers and if you would like to advertise in the future supplements please contact David Coburn on 0191 201 6390.

Follow Peter McCusker on Twitter @mccusker60

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