Editorial - September 2003
North Sea decline and US power collapse
This issue (September 2003) features our annual review of the North Sea production and future development projects. Unfortunately, it makes fairly gloomy reading. Overall North Sea oil production (p12) peaked in 2000, as did gas production in the dominant UK sector. Looking forward, the only area of continued expansion is Norwegian gas production.
A more positive view of North Sea prospects is to be found in the impact of the new entrants to the UK sector of the North Sea, who are picking up the assets that the oil majors are selling off (p30). Future drilling prospects could also be rather better than generally supposed (p18).
The real problem (or in the contemporary usage - challenge) is that for virtually the whole period from 1975 to 2000 expanding North Sea production provided a check to Opec's ability to drive oil prices higher. In the 25 years to 2000 North Sea production increased in 22 of the years, accounting for the bulk of the global increase in no less than eight of the years. In 1984, 1994 and 1995 the increase in North Sea production exceeded the increase of all Opec producers combined. The North Sea can no longer perform this role as oil production from the area peaked in 2000.
The key question now is whether the current production stars - Russia, Kazakhstan, Canada, Angola and Brazil - will be able to perform this this price moderating role? Or will Opec's power wax as booming oil revenues make it easier to restrict production flows to maintain prices?
In this context the continuing sabotage of Iraq's oil infrastructure, social unrest in Nigeria and mounting doubts about Venezuela's ability to sustain production capacity means that we should all pray that the upcoming winter is mild, particularly as oil stocks remain on the low side with the notable exception of crude in the Far East.
* * * *
The recent devastating collapse of power supplies in North America, the full explanation for which is still unknown, is being seen as a major wake-up call.
The immediate cause appears to have been some form of overload in Ohio that took down power transmission, initiating a ripple collapse as transmission capacity and generating capacity was tripped out and shutdown.
The good news is that all the shutdown procedures appear to have worked well and safely, with eight nuclear units having shutdown without problems or incidents.
The latest power crisis following the Californian crisis of 2000-2001 has re-ignited the somewhat arid debate between advocates of privatisation and decontrol, and those who favour controls and dirigiste planning. There seems little doubt that decontrol of generation has lowered electricity prices and led to more rational investment planning, with companies able to buy and sell electricity to allow them to optimise investment timing.
The weakness has been that they have overwhelmingly elected to build combined cycle gas turbine (CCGT) plants, but appear to have been caught out by the gas supply crisis which has produced high prices and restricted supplies - possibly for an extended period. Or they have elected to rely on buying supplies (often hydro) from oversupplied regions, without making appropriate investments in transmission capacity.
The television and media are currently full of graphs showing the rising US demand for electricity and the declining investment in transmission capacity. Currently promoted candidates for blame appear to be excessive competition (not enough money for investment), Enron (banks reluctant to loan to electricty companies), 'Nimbyism' (no new pylons near me), corporate greed (the system will probably hold up - no need for spending) and inappropriate or ineffective regulation.
Perhaps the oil industry has some lessons to offer. Western oil companies are overwhelmingly privately owned. They are subject to only limited regulation in terms of supply and distribution. However, the oil industry has been supremely successful at delivering society's most vital energy resource consistently and reliably. Oil can be stored, unlike electricity, so to improve supply security governments have mandated strategic storage, which neatly deals with the possibility that private companies would tolerate greater supply risks than governments are prepared to accept. The electricity equivalent would be mandatory spare generating capacity. Difficult, but not impossible to organise.
The challenge of transmission capacity is, however, rather greater. The parallel here is with common carrier pipelines versus access to privately-owned pipelines. The trick is to ensure a fair return to the investors without overly benefitting the non-investor. Current conventional wisdom favours the common carrier solution. Maybe this is unwise.
Chris Skrebowski
The opinions expressed here are entirely those of the Editor and do not necessarily reflect the view of the EI.
 print-friendly format
|
| |
|
|
