New projects to greatly increase North Sea oil and gas output and develop a “cleaner” low-carbon power station have been unveiled by ministers as the UK cabinet met in Scotland.
The new North Sea efficiency programmes could increase oil and gas production by up to 4bn barrels and £200bn over the next 20 years, said Ed Davey, the UK energy secretary, as he visited Peterhead power station.
He confirmed on his visit that Shell’s gas-fired power station at Peterhead had been awarded about £50m to install new carbon capture and storage (CCS) equipment – the first time in the world a gas-fired power station would be fitted with this technology. He said it would capture 1m tonnes of CO2 a year.
The announcements are designed to boost the UK government’s campaign to combat the push for Scottish independence, and lift North Sea oil up the referendum agenda, and were released as David Cameron visited an oil platform before staging a rare UK cabinet meeting in Aberdeen.
In an unprecedented diary clash that further raised tensions with the Scottish government, Alex Salmond was meanwhile chairing his own cabinet’s meeting at Portlethen, some 10 miles south of Aberdeen.
The Scottish government retaliated by announcing a £10.6m project to set up a new oil and gas innovation centre to design and promote new production techniques with 12 Scottish universities and oil and gas operators and contractors.
The centre, to be based in Aberdeen, would focus on maximising oil recovery from old fields, shale gas exploitation, extending the lifetime of rigs, decommissioning and seismic surveys.
The Department of Energy and Climate Change (Decc) said it would be able to boost North Sea production by fast-tracking a series of recommendations by Sir Ian Wood, the Aberdeen-based oil industry magnate, to improve production and industry efficiency.
Claiming that only the UK’s far larger and more diverse economy was able to afford the investment and tax breaks involved, Decc said: “The UK government offers the strongest basis to unlock the investment needed to achieve the objective Sir Ian outlines of maximising economic production.”
It added: “Whilst short-term prospects are good, with investment at record levels of £14bn, the UK continental shelf [the oil production area which includes the North Sea] faces unprecedented challenges.
“Production has fallen by 40% in the last three years, and the efficiency with which oil and gas is produced has fallen to 60%, costing the economy £6bn. The UK is reliant on North Sea oil and gas for more than half of total oil and gas used, and will continue to need around 70% of gas in the energy mix out to 2030.”
The Peterhead power station scheme, which has been repeatedly delayed in Whitehall and will eventually cost up to £1bn to complete, will involve fixing equipment to capture 90% of the CO2 from one of its three turbines. That CO2 will then be pumped into exhausted gas fields offshore.
Stuart Haszeldine, professor of carbon capture and storage at the University of Edinburgh and head of the industry and academic group Scottish Carbon Capture and Storage, said: “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 £200bn benefit Sir Ian Wood has identified can be realised.
“This will be good for our energy security, good for the economy and good for jobs. We have also invested in the world’s first gas CCS plant today planned at Peterhead. This project envisions a cleaner, greener future for the North Sea and will support thousands of green jobs.”
Salmond, whose Holyrood constituency includes Peterhead power station, countered that the vast majority of the revenues from Scotland’s oil and gas reserves would go to the UK instead of being better spent in Scotland.
“Recent estimates suggest that activity in the North Sea fields will last for decades with 24bn barrels of oil equivalent, valued at £1.5tn,” he said.
“Almost all oil production and more than half of total gas production over the next three decades will take place in Scottish waters. And, of course, only through independence would Scotland receive the tax revenues from this production.
“As an international oil and gas exporter, Scotland is undeniably a main player and that is why it is so important we harness the expertise of our universities and bring them together with industry.”
Insisting an independent Scotland would still be able to afford its share of the £1bn investment needed for Peterhead’s CCS scheme, Salmond dismissed Davey’s warnings that an independent Scotland’s reliance on declining and volatile oil revenues would make it more vulnerable.
Pointing at the wealth generated by Norway from its oil industry, Salmond said: “Is Scotland the only country in the world which wouldn’t be better off with having massive oil and gas resources? The problem is that these revenues have been siphoned off to the London exchequer.”
