Providing for the UK’s Energy Needs

Security of Energy Supply

Oil and gas from the UKCS have provided security of supply for much of the past three decades and are forecast to continue to meet a significant proportion of oil and gas demand. The UK has been self-sufficient in oil for the 25 years to 2005, with indigenous production satisfying 96% of demand in 2006. Assuming that new developments proceed as planned, it is expected that all oil needs will again be met by domestic production during the years 2007 to 2009. Nonetheless, action needs to be taken urgently to reverse the province’s declining competitiveness and hence its attractiveness for international investment, so that new reserves can continue to be found and developed. If this investment materialises, the UK would be able to meet about 60% of forecast oil demand in 2020 from indigenous production; if not, only about 25% of such demand will be satisfied from its own resources.

Figure 15: UK Oil Production vs Consumption 1970-2020

The UK became a net importer of gas in 2004 after a decade of self-sufficiency and in 2006 indigenous production satisfied 92% of demand (it is worth noting that, contrary to many perceptions, Britain has not been self sufficient in gas since North Sea production began in the late 1960s; significant quantities were imported from Norway between the late 1970s and the early 1990s). Given the rising demand for gas forecast during the next 15 years and the mature status of the UKCS, domestic production is expected to make a declining, but still important contribution. Current production plans would meet about 10% of the UK’s gas demand in 2020, but, with the right conditions and sustained investment, this could be 20-25% of such demand.

Figure 16: UK Gas Production vs Consumption 1970-2020

This declining UKCS production should not be seen as a cause for concern regarding security of gas supplies, provided that sources of new supply are diverse and markets are open. The success of the UK in attracting investment in new gas import infrastructure is, by any measure, impressive (see Figure 23, New Import Projects). The diversity of these supplies is evident: major new pipelines from Norway and The Netherlands, a trebling of the import capability of the continental Inter-Connector and new liquid natural gas (LNG) terminals on the Thames estuary, at Tees-side and in south Wales, the combined capacity of all of which is similar to today’s total demand. The LNG will be sourced from a variety of supply locations in the Middle East, north and west Africa and the Caribbean. A world market in LNG is beginning to develop, albeit broadly split into two between the north Atlantic and the western Pacific, linked however by the ability of cargoes from the Arabian Gulf to feed both markets. It is expected that there will be a four-fold growth in LNG shipments worldwide between 2000 and 2020 (and five-fold by 2030). This evolution of an LNG market has introduced a new and flexible dimension to international gas trading and adds to security of supply, especially in a market such as Britain’s which is open, liquid and has responsive pricing mechanisms.