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Energy Insight: Conventional onshore oil & gas in the United Kingdom

What is conventional onshore oil and gas? 

Conventional oil and gas refers to petroleum, or crude oil, and raw natural gas extracted from the ground by conventional means and methods, such as using the natural pressure of the well in combination with pumping and compression operations. When the oil fields near depletion, further enhanced oil recovery techniques like water and gas injections might be necessary due to decreasing natural pressure of the well. Due to recent technological advancements, oil and gas companies have been able to access previously unattainable reserves, referred to as unconventional oil and gas resources. This info sheet will focus on conventional onshore oil and gas production in the United Kingdom, with further information available for Saudi Arabia, the U.S., Russia and Nigeria. If you would like to find out more about unconventional oil and gas resources, please visit our dedicated Shale gas collection and guide.


The role of oil and gas in the UK economy

The UK economy is highly dependent on oil and gas as primary sources of energy and they play an important role in every area of our lives. Today, about 80% of UK’s energy needs are met by fossil fuels. The most heavily dependent sector is transportation

Figure 1. Sectors most heavily dependent on petroleum

Source: DUKES (2016)

In 2015, 47% of oil and 49% of gas used in the UK originated from domestic oil and gas production (DUKES 2016). UK is the second largest producer of oil in Europe after Norway and the third largest producer of gas in Europe after Norway and the Netherlands. Data shows that 3.716 billion tonnes of crude oil and natural gas liquids (NGL) had been produced by the end of 2016, with 515 million tonnes of proven and probable reserves remaining. Of those, 337 million tonnes are proven reserves. 


Early history

Churchill’s strategic decision

The history of onshore oil and gas production in the UK dates back to the late 19th century. Although the Scottish shale oil industry was established and lasted over a century, it would take two world wars to kick-start conventional oil production. It was in the beginning of the 20th century when oil became of crucial importance for the country due to Winston Churchill’s strategic decision to power the Royal Navy ships with oil rather than coal. However, at that time Britain was producing mainly coal. The Scottish shale oil was not able to meet the wartime demands and the world’s oil supplies were under foreign control, which became of even greater concern with the outbreak of the First World War. Such concerns led to a nationwide search for onshore oil reserves, resulting in the discovery of the Hardstoft oil well in Derbyshire in 1919. After the nationalisation of the country’s oil resources in 1934, more attempts were made to find onshore oil and gas reserves. The outbreak of World War II accelerated this search and new discoveries were made. In 1973, the largest onshore oil field in Europe was found – Wytch Farm in the district of Dorset. The oil field is still operational, with an average daily output of 17,000 barrels. 


Today

A terminal decline

Figure 2. Total UK oil and gas production (1970-2013)

Source: DECC (2016)

Nowadays, onshore oil and gas production in the UK accounts for only 2% of total oil and gas production in the country. The remaining 98% is produced from vast offshore oil and gas reserves in the North Sea. Currently, there are 120 onshore oil and gas sites with 250 operating wells producing between 20,000 and 25,000 barrels of oil equivalent a day. While some of the wells have been operational for the past 30 years, new onshore exploration and production are at an all-time low. Figure 3. illustrates the decline in number of new onshore wells being drilled in recent decades. 


Figure 3. UK onshore wells spudded 1967-2016  Data sourced from The Oil & Gas Authority (2017)

Only five new onshore wells were drilled in 2016, the lowest number since 1968. Moreover, all wells are located within a 40-mile range of Lincolnshire. An interactive map of past and present well data in combination with up-to-date onshore licensed areas in the UK provides further insight. 


Regulation

Under the Petroleum Act of 1998, the Crown has all ownership rights to hydrocarbon resources in the United Kingdom. Responsibility for administration on behalf of the Crown falls to the Secretary of State for the Department for Business, Energy and Industrial Strategy (BEIS). As well as UK regulations, the oil and gas industry is governed by a set of European legislation on safety and environmental standards, emergency stock requirements, decarbonisation methods and fairness and transparency in granting exploration and production licences. 

The process of obtaining consent to drill a well is the same whether the well is targeted at conventional or unconventional oil and gas. The pre-drilling approvals checklist specifies the necessary licenses, permits and documentation an operator must obtain prior to initiating operations. While the pre-drilling approvals checklist is valid and identical for the entirety of the United Kingdom, there might be institutional, legislative and procedural differences between each of the countries within the UK. 

·         England

·         Wales

·         Scotland

·         Northern Ireland



Licensing 

The first step necessary for obtaining consent to initiate operations is the obtainment of a license.

From April 2015, the Oil & Gas Authority (OGA) replaced the Department for Energy and Climate Change (DECC) as the entity responsible for petroleum licensing and regulation of the upstream oil and gas sector, including: oil and gas licensing; oil and gas exploration and production; oil and gas fields and wells; oil and gas infrastructure; carbon storage licensing. The OGA was established on 1st of October 2016 as a fully independent regulator and a government-owned company, with the Secretary of State for Business, Energy and Industrial Strategy as the sole shareholder. 

The OGA operates a licensing regime that gives companies exclusive right to search, bore for and get petroleum. Such licenses are issued after a competitive process called a licensing round. There have been 14 onshore licensing rounds so far with the most recent one being held in 2014. Upcoming rounds are placed in the London Gazette. Licences can be held by a single company or by several working together. Nonetheless, there is certain residence criteria which must be met before a license is granted. This is done in order to ensure that the licensee has a legitimate place of business in the UK. The OGA grants two types of licences: Exploration Licence (XL) and Petroleum Exploration and Development Licence (PEDL). While the Exploration Licence grants right to explore only, not to drill or produce, the latter grants exclusivity to licensees in relation to hydrocarbon exploration and extraction within a defined area. It is important to note that this is not an operations permit. Operations can begin once all the necessary conditions from the pre-drilling approvals checklist are fulfilled. 


Environmental permits

Obtaining the necessary environmental permits is an integral part of the pre-drilling approvals checklist. Specific information about the permits required in each of the countries in the UK, excluding Northern Ireland, can be found below. 

·         England  Environment Agency (EA) 

·         Wales  Natural Resources Wales (NRW)

·         Scotland  Scottish Environment Protection Agency (SEPA) 


A common requirement for all countries will be the conduct of an Environmental Impact Assessment (EIA). The EIA will determine whether there are any environmental impacts associated with the proposed development during construction and operation, the significance of any such impacts and how and whether these impacts can be mitigated.


Further reading

Onshore oil and gas guidance. Oil & Gas Authority 2017

https://www.ogauthority.co.uk/media/4522/29112017_consolidated-onshore-guidance-compendium_vfinal.pdf


Overview of oil and gas regulation in the UK. Thomson Reuters 2017.

https://uk.practicallaw.thomsonreuters.com/5-524-5349?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1 

Onshore oil and gas exploration in the UK: regulation and best practice. England. DECC 2015.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/503067/Onshore_UK_oil_and_gas_exploration_England_Dec15.pdf 

Production data. Oil & Gas Authority 2017

https://www.ogauthority.co.uk/data-centre/data-downloads-and-publications/production-data/

Map of UK licensed areas and historical well data. Oil & Gas Authority 2017 

https://ogauthority.maps.arcgis.com/apps/webappviewer/index.html?id=29c31fa4b00248418e545d222e57ddaa 


2016 onshore oil and gas drilling reaches near 50-year low 

https://drillordrop.com/2017/01/09/2016-onshore-oil-and-gas-drilling-reaches-near-50-year-low/

Energy Insight details


Onshore oil.docx

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Subjects: Oil and gas, Onshore exploration, Oil reserves

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