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The Economic Dichotomy of Oil and Gas

Oil and Gas. They often come hand in hand when people talk of the industries. Well they may be associated by default but they have very different uses. Whereas the oil prices have taken a nose dive in the last 12 months, gas on the other hand has not.

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In 2008 a gas field was discovered in block 22/25a in the central North Sea. It was the largest field found in the area for a decade and has now become the largest gas field sanctioned since East Brae in 1990.

Culzean has resources estimated at 250-300m barrels of oil equivalent and when peak production kicks in by 2020/21, the field is expected to produce 5% of the UK’s total gas demand or half of Scotland’s.

Maersk Oil, JX Nippon and BP are putting in around £3bn to develop the field, and more than 50% is committed to investments in the UK according to Oilvoice.com. It will come as welcome relief to the industry which has suffered thousands of lay-offs in recent months. It’s estimated around 6000 jobs will be supported over the course of its 13 year lifespan and more than 400 created directly.

The investment decision has been supported in no small part by the tax breaks for the industry introduced by the Government. It is predicted this region will save around £1.3bn over the next five years. Maersk credited the Government directly, saying “The allowance supports the development of high pressure, high temperature projects – which typically have considerably higher capital costs – and encourages exploration and appraisal activity in the surrounding area.”

The chief executive of the Oil & Gas Authority Andy Samuel said, “(This) is excellent news for the UK during a period when the decline in global oil prices has created difficult operating conditions for this critical sector of the economy.” The Chancellor George Osborne said, “(It) sends a clear signal that the North Sea is open for business.”

But the Scottish Energy Minister Fergus Ewing called on the Chancellor to do more. “As the largest new field in a decade it demonstrates that there remain considerable opportunities to extend production for decades to come. It is vital the Chancellor urgently consults on measures which support exploration – a commitment that the UK Government made in December 2014 but have yet to deliver.”

There’s no doubt the North Sea needs more than this one gas field. With low oil prices many fields are uneconomical. Aberdeen-based oil services giant the Wood Group said last month 1,000 UK jobs were to be cut as a result of the price drop. The Scottish Parliament warned that as many as 15,000 people out of the current 200,000 strong northern border workforce might lose their jobs in this crisis. To illustrate this – in 2008 there were 44 exploration well drilled. In 2014 there were only 14. Culzean is a mammoth resource of natural gas but to those who need work, it is only one small drop in an ocean.
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