Wednesday, August 3, 2011

United Kingdom Energy Report



The United Kingdom (UK) is the largest producer of oil and second-largest producer of natural gas in the European Union (EU). After years of being a net exporter of both fuels, the UK became a net importer of natural gas and crude oil in 2004 and 2005, respectively. Production from UK oil and natural gas fields peaked in the late 1990s and has declined steadily over the past several years, as the discovery of new reserves has not kept pace with the maturation of existing fields. In response, the government has begun a three-pronged approach to address the predicted domestic shortfalls:

 1) increasing domestic production; 
 2) establishing necessary import infrastructure, such as liquefied natural gas (LNG) receiving terminals and transnational pipelines; and 
 3) investing in energy conservation and renewables.


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Oil

According to Oil and Gas Journal (OGJ),the UK had 3.1 billion barrels of proven crude oil reserves in 2010, the most of any EU member country. In 2009, the UK produced 1.5 million barrels per day (bbl/d) and consumed 1.7 million bbl/d of oil.

Exploration and Production

The UK Continental Shelf (UKCS), located in the North Sea off the eastern coast of the UK, contains the bulk of the country's oil reserves. There are also sizable reserves in the North Sea north and west of the Shetland Islands. Besides these offshore assets, the UK also has the Wytch Farm field located in the Wessex Basin, the largest onshore oil field in Europe, which has produced more than 400 million barrels of oil over its 35-year life.





Total oil production (including condensates, natural gas liquids, and refinery gain) in the UK was 1.5 million bbl/d in 2009, a 5-percent decline compared with the 2008 production levels. The 2009 production was about one half of the peak annual production in 1999. The UK government expects oil production in the country to continue to decline, reaching between 0.8 and 1.2 million bbl/d by 2015. Reasons for this decline include 1) the overall maturity of the country’s oil fields, 2) the application of new crude oil extraction technologies that accelerate field exhaustion, and 3) increasing costs as production shifts to more remote and inhospitable regions.

Exports

Most of the UK crude oil grades are light (30° to 40° API) and sweet (relatively small amounts of sulfur), which generally makes them attractive to foreign buyers. The UK was a net exporter of crude oil between 1981 and 2005 and has since become a net importer. According to the British Revenue and Customs Trade Statistics, about 69 percent of all crude oil imports originated in Norway (which is not part of EU 27) with another 8 percent arriving from Russia. Nonetheless, the UK also continues to export a significant amount of crude oil. In 2009, the country exported 875,000 bbl/d, with crude oil going to the Netherlands (40 percent), United States (24 percent), and Germany (17 percent). The remaining 19 percent of crude oil exports were sent to a number of other countries, including France, Spain, Canada, and Chile.




Source:UKHM Revenue and Customs






Pipelines

There is an extensive network of pipelines in the UK to carry oil extracted from North Sea platforms to coastal terminals in Scotland and northern England. BP operates the 110-mile, 36-inch Forties-Cruden Bay pipeline, linking fields in the Forties system to the oil terminal at Cruden Bay, Scotland. The company also operates a 110-mile, 36-inch pipeline connecting the Ninnian system to the Sullom Voe oil terminal on Shetland Island. Britoil Plc operates a 150-mile, 24-inch pipeline linking the Bruce and Forties fields to Cruden Bay and Talisman operates a 130-mile, 30-inch pipeline connecting the Piper system with Flotta on Orkney Island. Shell and Esso jointly operate a 93-mile, 36-inch connection between the Cormorant oil field and Sullom Voe. There are also numerous, small pipelines that connect each North Sea oil platform to these major backbones. Finally, the UK does have a few onshore crude oil pipelines, including a 90-mile, underground pipeline operated by BP that links the Wytch Farm field to the refinery at Fawley and the nearby oil export terminal at Southampton.


The UK has a single international crude oil pipeline, the 220-mile, 34-inch Norpipe operated by ConocoPhillips. With a capacity of 900,000 bbl/d, Norpipe connects Norwegian oil fields in the Ekofisk system to the oil terminal and refinery at Teesside.

Downstream

The UK had 1.9 million bbl/d of refining capacity in 2010, according to OGJ. ExxonMobil operates the single-largest refinery in the country, the 329,500-bbl/d Fawley facility in southern England. Other companies with sizeable refining capacity in the UK include Shell (272,000 bbl/d), Petroplus (272,000 bbl/d), ConocoPhillips (221,000 bbl/d) and Total (221,000 bbl/d).

Sector Organization

BP is the largest oil producer in the UK, with 23 fields producing a total of 247,000 bbl/d for the 12 months ending April 2010, according to the British Department of Energy and Climate Change (DECC). Other large oil producers in the UK include Nexen, Shell, and Total. The Canada-based Nexen operates Buzzard, UK’s largest oil field, which accounted for close to 15 percent of total UK oil production in 2009.


As UK oil fields mature, the industry has shifted focus from discovering new reserves to increasing the productivity of existing fields and developing smaller fields that were previously considered non-commercial. This trend has prompted oil majors such as BP and Shell to begin selling their UK assets in order to focus on high growth, international opportunities. The result has been the entry into the UK oil sector of many smaller operators. In 2003, U.S.-based Apache purchased BP's Forties field for $630 million, and other smaller operators, such as Talisman and Nexen have acquired significant production assets in the country. For the 12 months ending April 2010, five of the top ten producers (by volume of oil produced) were smaller operators.


Natural Gas


According to OGJ, the UK held an estimated 10.3 trillion cubic feet (Tcf) of proven natural gas reserves in 2010, a 15 percent decline from the previous year. Most of these reserves occur in three distinct areas: 1) associated fields in the UK continental shelf (UKCS); 2) non-associated fields in the Southern Gas Basin, located adjacent to the Dutch sector of the North Sea; and 3) non-associated fields in the Irish Sea. In order to take advantage of its domestic reserves, the UK government has encouraged the use of natural gas as a substitute for coal and oil in industrial consumption and electricity production. Natural gas consumption in the UK reached 3.1 Tcf in 2009, falling about 9 percent compared with the prior year, while the percentage of total energy consumption sourced from natural gas in the UK was 36 percent in 2007.

Exploration and Production

The UK produced 2.1 Tcf of natural gas in 2009, falling more than 16 percent compared with the previous year, which was the largest year-on-year production decrease in at least 30 years. At 2.1 Tcf, UK’s production reached the lowest level since 1993. While the country was one of the largest producers of natural gas in the world only a few years ago, it has since slipped to thirteenth place.




The largest concentration of natural gas production in the UK is the Shearwater-Elgin area of the Southern Gas Basin. The area contains five gas fields, Elgin, Franklin, Halley, Scoter, and Shearwater. Most of the leading oil companies in the UK are also the leading natural gas producers, including BP, Shell, and ConocoPhillips. The major gas distribution companies in the UK, such as BG Group and E.ON Ruhrgas, also have a presence in the production sector.

Sector Organization

Private companies control the UK natural gas sector, including production, distribution, and transmission. The largest gas distributor in the UK is Centrica, a spin-off of the distribution assets of formally state-owned British Gas. The British gas distribution sector underwent a major change in 2005, when National Grid Gas sold four of the eight gas distribution networks to Scotia Gas Networks, Wales and West Utilities, and Northern Gas Networks. Prior to this sale, National Grid controlled the domestic gas transmission system.

Pipelines
Domestic System


There are four main pipeline systems in the UK that carry natural gas from offshore platforms to coastal landing terminals. The Shearwater-Elgin Line (SEAL), operated by Shell, transports gas from the Shearwater-Elgin area to the landing terminal at Bacton, England. ExxonMobil operates the 200-mile, 30-inch Scottish Area Gas Evacuation (SAGE), which transports associated natural gas from UKCS fields to the landing terminal at St. Fergus, Scotland. The 250-mile, 36-inch Central Area Transmission System (CATS), operated by BP, links fields in the Central North Sea to Teesside. Finally, Shell operates the 283-mile Far North Liquids and Gas System (FLAGS) linking associated gas deposits in the Brent oil system with St. Fergus. Once brought onshore, the responsibility for transporting natural gas throughout the country belongs to the utilities operating in the UK, including National Grid and Scotia Gas Networks.

International Pipelines

A consortium of companies operates the Interconnector pipeline between Bacton, England and Zeebrugge, Belgium. The Interconnector, inaugurated in 1998, is capable of bi-directional operation, meaning either it can export natural gas from the UK to continental Europe ( Forward Mode ), or it can import natural gas into the UK ( Reverse Mode ). Since it began operating, the Interconnector has mostly operated in Forward Mode, however during late fall and winter seasons, the pipeline has tended to operate in Reverse Mode. The pipeline has undergone three phases of expansion, with additional capacity and compression added to it between 2005 and 2007. Interconnector is currently capable of transporting 2.0 Bcf/d in Forward Mode and 2.6 Bcf/d in Reverse Mode.


The UK also imports natural gas through the Frigg pipeline system, operated by Total. Frigg connects the St. Fergus gas terminal with the Frigg gas field in the Norwegian sector of the North Sea. Finally, the UK-Eire Interconnector connects the UK with the Republic of Ireland, running from Moffat, Scotland to Dublin.

Liquefied Natural Gas (LNG)

Currently, the UK has four LNG import terminals and the country was the eighth-largest importer of LNG in 2009. The longest-operating LNG terminal in the UK is National Grid’s Grain LNG terminal on the Isle of Grain. The facility originally became operational in 2005 when Phase I of the construction was completed. Additionally, Phase II has been completed in 2009 and the expected date of completion for Phase III is 2011. With the completion of Phase II, the terminal’s capacity increased to 1.4 Bcf/d. National Grid plans to expand the facility to 2 Bcf/d in time for the 2010/2011 winter.


Teesport LNG, operated by the U.S.-based Excelerate Energy, commenced commercial operation in February 2007. This was the first dockside regasification port and the second operational LNG facility in the UK Teesport LNG can deliver up to 600 MMcf/d of natural gas to the UK market


The Dragon LNG terminal, a collaboration of BG, Petronas, and 4Gas, commenced operation in September 2009. The import, storage, and regasification terminal is located in Milford Haven in South Wales and has a sendout capacity of 1.1 Bcf/d.


The South Hook LNG terminal, also located in Milford Haven, Wales, is owned and operated by Qatar Petroleum, ExxonMobil, and Total. Europe’s largest LNG terminal became commercially operational in October 2009 with an initial capacity of 1.1 Bcf/d. When fully commissioned (following the Phase II completion), the terminal’s capacity is expected to reach 2.1 Bcf/d.


Electricity
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The UK had installed electricity generation capacity of 85 gigawatts (GW) in 2007. Also in 2007, the UK generated 368.6 billion kilowatthours (Bkwh) of electricity while consuming 345.8 Bkwh. Most electricity generation comes from conventional thermal sources (78 percent), followed by nuclear (16 percent), other renewables (4 percent), and hydroelectricity (1 percent).

Sector Organization

The UK has a privatized electricity sector, where generators and distributors trade electricity on a wholesale market. The largest power producer in the country is Electricité de France (EDF) Energy, which controls most of the nuclear power capacity and generates one sixth of the total electricity supply. Other important generating companies include E.ON UK, RWE-npower, Scottish and Southern Energy (SSE), and ScottishPower (SP). National Grid owns and operates the national transmission system in England and Wales, whereas SSE and SP operate the grid in Scotland, and Northern Ireland Electricity (NIE), operates the grid in Northern Ireland.




The UK has slowly integrated the formally-separate electricity markets of its component parts (England, Northern Ireland, Scotland, and Wales). The British government formed the New Electricity Trading Arrangements (NETA) in 2001 to integrate the electricity markets of England and Wales. In 2005, the British government extended NETA to Scotland as the British Energy Transmission and Trading Arrangements (BETTA). There are plans to eventually incorporate Northern Ireland in to the BETTA. In addition, SP and SSE have increased the transmission capacity between England and Scotland to allow them to sell more electricity to English and Welsh customers.

Conventional Thermal

Conventional thermal plants continue to provide the bulk of the electricity supply in the UK. According to the DECC, conventional thermal generation in 2009 consisted of natural gas (44 percent), coal (28 percent), oil (1 percent), and other (1 percent). The long-term trend in UK power generation has been a move from coal-fired plants to combined-cycle, gas-fired turbines (CCGFT). As a result, according to UK’s Department of Energy and Climate Change, electricity generation from CCGFTs increased from zero in 1989 to 161 Bkwh in 2009.



Nuclear

Currently, there are 10 nuclear power plants in the UK, eight of which are operated by EDF Energy, which acquired BE in September 2008. These eight plants include seven stations that use advanced, gas-cooled reactors (AGR) and one (Sizewell B) using a pressurized-water reactor (PWR). All of the AGR reactors will reach the end of their designed lifetime by 2023. Additionally, there are two, first generation, magnesium-oxide (Magnox) plants, Oldbury and Wylfa, which are expected to be shut down by June 2011. The two plants are the only ones remaining of the original 11 units built beginning in the 1950s.


In 2008, the UK government announced its support for additional nuclear power plants to meet projected energy needs. The government issued a series of national policy statements (NPSs) in 2009, identifying potential sites for new plants and outlining its policy that promotes building of new nuclear power plants by 2025. Following the announcement and the NPSs, a number of companies proposed nuclear power plant projects. Among those, EDF proposed four new European pressurized reactors (EPR) totaling 6,400 MW, the first one of which would start up in 2017.

Renewables

The UK government has introduced regulations that require electricity distributors to source a portion of their electricity supply from renewables (including hydroelectricity), which totaled 25,222 GWh of electricity in 2009. Investments in wind power have increased substantially, aiming to take advantage of the natural geographic advantage that the UK has in this regard. Wind is the single-largest contributor of electric power generation among the renewable fuels, followed by hydroelectricity and biomass.

Coal

The UK had an estimated 171 million short tons (Mmst) of recoverable coal reserves in 2005. The country produced 22 Mmst in 2005, remaining one of the top ten coal producers in the EU. Coal production in the UK has declined steadily and dramatically since the early 1990s. Decreasing domestic consumption and a surge of low-cost imports have been the principle causes of the production decline. According to DECC, the UK imported 44 Mmst in 2005, accounting for 71 percent of total coal supply in that year.


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