Skip to main content

Government must 'take back control' of North Sea oil and gas production

Terry Macalister - The Guardian

Energy expert Peter Odell says state authority would ensure companies work in the national interest.

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, a respected petroleum academic has warned.

Peter Odell - whose area of expertise is the economics and politics of energy, and who remains emeritus professor of international energy studies at Erasmus University Rotterdam - wants a state-controlled strategic offshore hydrocarbons authority to ensure big oil companies work more in the national interest.

In a new book soon to be published, he argues: "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 and has failed to create attractive conditions for private companies to invest more."

He adds: "The government should follow the example of Norway and many other countries by setting up a hydrocarbons authority, which would initiate new private-public partnerships to engage in offshore oil and gas production. This would generate many billions of pounds in highly needed revenues."

Only the US is similar to Britain, he claims, in leaving the exploitation of its natural resources entirely to the private sector, whereas most countries control the business through state agencies or their own national oil corporations.

Britain and Norway took very different paths in the development of the North Sea, with the UK initially using state-owned groups, such as the British National Oil Corporation and a partly state-owned BP. These government stakes were gradually sold off, while Oslo has kept a much tighter rein on its sector and built up a massive sovereign wealth fund with the proceeds.

The increasing competition between China, Russia and western interests for exploitation of dwindling oil opportunities in the Middle East and elsewhere has led some British politicians to campaign for a more activist approach. But little has been done at home apart from occasional tweaks of the North Sea tax regime, say critics.

The Department of Energy and Climate Change (DECC) dismissed suggestions that the private sector was shying away from investment and the UK needed a more hands on approach from the state.

"There is very strong appetite from industry in the UK continental shelf. The government has a strong relationship with industry through PILOT [a body incorporating UK oil and gas operators, contractors, suppliers, unions and the government] and the UK oil and gas industry attracts about £12bn expenditure a year," a DECC spokeswoman said.

"The 25th licensing round produced the highest number of licences ever offered. In January, we launched a new round of offshore licensing, including areas of the UK continental shelf not as yet explored, as well as tax changes to fields in the west of Shetland, which have given a further boost to the industry," she added.

But Odell believes a change is vital as Britain is being forced to import more and more oil and gas at a time when it is taking longer than expected to get new nuclear and renewable plants up and running.

The energy academic believes this country should model a strategic offshore hydrocarbons authority on Norway's Petoro, giving the organisation responsibility for creating "continually available opportunities" for exploration for hydrocarbons across the whole of the UK continental shelf, except on those blocks already licensed.

"From these opportunities, oil and gas companies could at any time select areas they wish to explore, based on their knowledge of the hydrocarbon potential. The strategic authority, in turn, would be required at all times to consider such requests by any reputable company in order to determine, as a matter of urgency, the conditions and terms on which exploration could take place."

Once a company's initial exploratory work confirms the existence of an oil or a gas field with production potential, then a public private partnership could be negotiated between it and the authority.

He says now is the time for change, adding: "With elections coming up, and the UK finding itself in dire financial straits, this moment represents a golden opportunity for political parties to radically change the UK's hydrocarbons policy, which has served this country very poorly indeed.

"Such a change would correct a historical mistake and generate many billions of pounds in new revenues."

• This article was amended on 9 March 2010. The original described Peter Odell as an adviser to the Opec oil cartel. Peter Odell has asked us to make clear that this is not the case.