INVESTMENT in North Sea oil and gas will fall away sharply unless urgent action is taken to address serious underlying problems in the sector, a Government-commissioned review has found.
Former oil industry boss Sir Ian Wood warned there could be a 50% cut in investment over the second half of the decade unless further new commercial fields are discovered.
While he estimated that a further 12 to 24 billion barrels of oil could still be extracted from the North Sea over the coming decades, he said the existing regulatory framework needed to be overhauled in order to maximise the economic benefit.
He reaffirmed his recommendation in his interim report last November for the creation of a new arm’s length body with a remit to maximise collaboration in exploration, development and production across the industry.
Sir Ian said that it should be possible to deliver at least three to four billion more barrels over the next 20 years - worth around £200 billion to the UK economy.
However the the existing light-touch regulatory framework was no longer suitable for an environment where there were now more than 300 fields - many of them marginal - competing for the use of an ageing infrastructure.
“There is a huge prize at stake, and I believe government must implement the key recommendations, including the creation of a new regulator, as quickly as possible,” Sir Ian concluded.
“The case for swift implementation is made all the more pressing by the industry’s expectation of at least a 50% reduction in new field investment in the latter half of this decade, unless further new commercial fields are identified.
“There is also clear consensus that exploration is at a critically low level and badly needs significant new initiatives.”
The review said that 42 billion barrels have so far been extracted from the North Sea while investment in the sector reached a record high last year of more than £14 billion.
However it found there were “serious underlying problems” with a 38% fall in production between 2010 and 2013 - the equivalent of around 500 million barrels.
Of that, 360 million was due to a rapid fall in production efficiency - which cost the Treasury £6 billion in lower tax receipts - while a sharp decline in exploration had led to the equivalent of less than 150 million barrels being discovered over the past two years.
Energy and Climate Change Secretary Ed Davey, who commissioned the review, said he fully accepted the findings and would begin implementing its recommendations immediately.
“The UK Government already supports Scottish energy projects worth hundreds of millions of pounds each year, and our large tax and consumer base will ensure that the potential £200 billion benefit Sir Ian Wood has identified can be realised,” he said.