The UK gas industry will remain to be an important player in the world energy stage for decades to come. The future of Britain´s energy supply largely relies on the developments in the industry, along with established practices and evolving technologies.
The UK gas industry operates in a complex environment with a number of diverse factors changing its outlook - regulatory pressure, economic uncertainty, energy policies and shareholder´s expectation. In pursuit of meeting economic and environmental goals, the industry has been developing best practices and improving its operations. These practices aim to promote safe, environmentally responsible extraction and distribution of gas and enable the industry to adapt to price volatility, evolving regulation and changing perceptions within society.
As per the United Kingdom Continental Shelf (UKCS) licensing practices, licenses are granted via annual licensing rounds by Department of Energy and Climate Change (DECC). The UKCS is divided into several blocks and these blocks are awarded on the basis of competitive bids by the participants. The UK government actively sought new entrants to the UKCS by promoting licensing rounds with less demanding terms and the fallow acreage initiative which voids inactive licenses.
Through effective health and safety practices, the UK gas industry is committed to safeguard the workforce and public. Safety system implementation in the industry is duly supported by a legal framework that drives its continuous improvement. Step Change in Safety, the industry´s flagship safety initiative, was set up in 1997 to reduce accident and injury rates. Following this, the fatal and major injury rate fell by 70 per cent within the industry. Further, a five-year Strategic Plan 2010-2015 was launched to make UK the safest place to work in the worldwide gas industry. Ageing assets are a constant challenge to the safety of people and environment and are key selection criteria in the supply chain procurement processes. Over the last 35 years, various mains replacement programmes have been put in place by the Health and Safety Executive (HSE) enforcement policy to address the failure of ageing assets. In 2002, these programmes have been designed to decommission all at risk assets within a 30-year period.The UK gas industry also plays a major role in UK´s transition towards a lower-carbon economy. The environmental practices encourage the industry to include more clean technologies which reduce carbon emissions during energy production. The industry is committed through the Climate Change Act to deliver 20 per cent reduction in CO2 emissions by 2020 and 80 per cent by 2050. To achieve these targets, low carbon energy innovation is essential. The Low Carbon Innovation Co-ordination Group (LCICG) brings together the major public sector organisations to maximise support for low carbon technologies.
Together with the UK government, the UK gas industry is committed to maximise opportunity and investment and to promote the growth of supply chain. Although the industry has connections with various government departments, there is potential for greater collaboration on technological and financial matters.
The ´Government and Industry in Partnership´ strategy marks the beginning of a new approach that allows a group of Members of Parliament to support the work of the Oil and Gas Industry Council. This will enable the group to liaise directly with the industry and to identify prospects for joint functioning. This also provides a forum to discuss and mitigate the constraints within supply chain. PILOT, a joint programme between government and industry, aims at maximising the economic recovery of the UK´s gas resources. It is established in order to identify fall in prices, maturing of UKCS and a need to reduce the activity costs. To supplement PILOT, DECC has established Project Pathfinder to provide a real-time look at gas projects for new field developments and decommissioning of redundant projects in the UKCS. This programme builds on the existing forums such as PILOT´s Share Fair and Forward Workplan. It gives information on location, type of development, timings of business opportunities and contact details within companies. It also aims to increase visibility in contracting community. In addition to this, the government has recently announced the creation of a´Business Bank´ to help small and mid-sized businesses deal with challenges arising due to diverse finance markets. A funding of ú1 billion has been allocated to the Business Bank to leverage private sector investment and encourage the private sector solutions. The bank will also bring together the strategy, management and communication of existing finance schemes for SMEs. The UK gas industry has further undergone major changes due to market reforms and new legislations. Third Package, a recent legislation, has increased liberalization of the internal European gas markets. This has created a new legal framework to promote cross-border trade and as set out procedures for the establishment of network codes. These codes are designed to promote the creation of liquid markets, the efficient use of cross-border transmission capacity and the integration between Member States´ gas markets.
Greater focus on asset integrity, tougher economics and the need for higher recovery factors have created a necessity to reduce costs and invest in technology to ensure the longevity of the gas industry. Further, to sustain the UK economy during the move to alternative energy forms, the gas industry will need new technologies. With increasing energy demand and insufficient production, the need for investments in technology has become a priority.
The Industry´s Technology Facilitator ITF identifies industry needs and facilitates the development of new technology by providing funding for promising solutions. In the last decade, ITF has assisted in creating a collaborative environment for gas producers, service companies and technology developers. It has helped in developing 200 technology projects with a portfolio of around 37 ongoing projects linked to ú16 million direct member investment.
In addition, the UK government has been exploring the option of shale gas fracking to sustain UK´s energy needs. The UK has been a net importer of gas since 2004, with 2011 marking the peak of imports. At this stage, hydraulic fracturing technique has made possible shale gas exploration. At present, shale gas may not be a viable option for the UK due to the lesser land area available for drilling. But if it can be extracted safely and economically, shale gas can develop a new onshore gas industry. On these lines, the UK government introduced tax incentives to fracking companies and financial benefits to local communities.
The evolution of smart meters has also helped to balance the supply-demand by reducing energy usage. These next generation meters offer a wide range of intelligent functions and provide real time energy use information in terms of money.
Through them, consumers will be able to manage their energy usage, reduce emissions and save money. The government has already started the central smart metering implementation programme to develop best outcomes for smart metering and customers. The rollout for smart meters will result in the replacement of gas meters by end of 2020.
In order to shift to a low carbon energy supply system, the UK needs to prevent carbon dioxide building up in the atmosphere by capturing and storing it. Carbon Capture and Storage (CCS) is a potential cost effective technology for decarbonisation of the UK gas sector. This technology requires changes to the National Transmission System (NTS), to allow carbon dioxide to flow through pipelines to redundant North Sea fields for safe storage. The UK government, in a bid to encourage development of CCS technologies, has planned to invest a billion pounds in selected projects. The government expects that the CCS industry will return 6.5 billion in economic benefits by 2030.
The UK gas industry will remain to be an important player in the world energy stage for decades to come. The developments in the industry, along with the established practices and evolving technologies, provide foundations for progression in terms of energy, the economy and the environment. However, this transition needs to be monitored carefully in the coming years. The future of energy supply largely relies on how it builds on these foundations and to what effect.