Oil And Gas Industry Of The United Kingdom: Financial Statistics And Risk Assessment

Financial Statistics of the Oil and Gas Industry in the United Kingdom

The oil and gas industry is considered to be one of the largest industries in the world presently in terms of the economic revenue which it generates on an annual basis. The industry employs thousands of individuals from diverse parts of the globe in a bid to cater to the energy and other related requirements of the world. It is to be noted that in nations like Saudi Arabia and others it forms a major source of income to the nation and even contributes a major amount to the GDP of the nation (Energy.gov 2018). The United Kingdom is one of the key players in the global oil and gas industry. The “Oil and Gas Cooperation” of UK was founded in the year 1909 and since then it has formed the backbone of the economy of United Kingdom (Hse.gov.uk 2018). According to a report, in the year 2014 the industry produced 1.42 million boepd, of which oil and gas amounted to around 59% (Oilandgasuk.co.uk 2018). Some of the financial statistics of this particular industry of the United Kingdom are listed below-

It is to be noted that although the nation produced such impressive amount of oil and gas but the majority of them was consumed by the United Kingdom itself. For example, in the year 2014, the consumption of oil and gas by the United Kingdom was “1.508 million bpd of oil and 2.735tcf of gas” (Oilandgasuk.co.uk 2018). Therefore, the United Kingdom had to depend on other sources of energy like hydrocarbons to cater to the energy needs of its people. It is interesting to note that in the 1970s and 1980s the United Kingdom was a major exporter of the various hydrocarbons however, in the present times the United Kingdom is one of the major importers of the hydrocarbons (Energy.gov 2018).

It is interesting to note that 98% of UK’s oil and gas production comes from the its various offshore fields (Hse.gov.uk 2018). The primary ones among these offshore fields are located in Aberdeen, Morecambe Bay, the Southern North Sea and various others. Another interesting fact to note is that till 2012, the United Kingdom had 15,729 kilometers length of pipeline which connects around 113 oil installations as well as 189 gas installations (Oilandgasuk.co.uk 2018). It is interesting to note that the high cost of export makes the oil and gas produced by the United Kingdom, to a be high-cost commodity. As per a 2014 data, the United Kingdom’s average cost related to the aspect of development was around $20.40/boe with an additional operational cost of around $27.80/boe (Oilandgasuk.co.uk 2018). In addition to this, the nation also ended up spending around €1.1billion for exploration purposes along with an operational cost of €9.6 billion and €14.8 billion worth of capital investment for the year 2014 (Oilandgasuk.co.uk 2018). This had a direct impact on the price of the oil and the gas sold by the United Kingdom. Therefore, the United Kingdom has resorted to various measures to reduce the cost of the production of oil and gas products. The primary one among this is the policy of “Ageing and Life Extension (ALE) of oil and gas assets in the North Sea”. According to this policy, the United Kingdom instead of procuring various new instruments and equipment to increase the productivity of its oil and gas fields off the North Sea focuses on various means in order to increase the life span of their existing equipments (Energy.gov 2018). This policy of the United Kingdom is clearly outlined in the dictum of Grey (2016), “As the UK offshore oil and gas industry seeks to maximize the economic recovery of hydrocarbon reserves – and technology is developed to enable that objective – so many installations will remain in service beyond their originally planned operational life span….This inevitably presents challenges to the industry in managing the effects of ageing on assets, plant and equipment, to ensure that integrity can be maintained throughout the full asset life cycle……Ageing and Life Extension (ALE) is all about helping operators maximize the value and the economic life of their assets without compromising on safety…” (Hse.gov.uk 2018).

Internal and External Risks

Risk can be defined as the situation in which a company or a business organization stands to gain or lose something in terms of its resources or its annual profit (Skogdalen and Vinnem 2012). Therefore, risk management forms an important aspect of the business process of any company or business organization. It is to be noted that the oil and gas industry of the United Kingdom faces a considerable amount of risk not only in terms of the various environmental factors but also in terms of the international business environment and profitability (Skogdalen and Vinnem 2012). A risk assessment and management of the oil and the gas industry of the United Kingdom is provided by the below given table-

Internal Risks

External Risks

Asset integrity can be defined as the ability of a product or equipment to perform the activities or functions which were required of it in the most effective as well as efficient manner while taking into consideration the environment and the safety regulations. It is to be noted that the United Kingdom follows an asset integrity program for the maintenance of its assets related to its North Sea fields for the drilling of oil and gas. This program was developed as a result of the KP3 program along with several other events like Texas City, “Piper Alpha North Sea disaster” and others (Oilandgasuk.co.uk 2018). It is to be noted that this program is also directed “to extend the sustainable productive life of the North Sea, acted as a catalyst for driving the asset integrity management agenda to a higher level and has resulted in a better coordinated approach” (Hse.gov.uk 2018). This program was instrumental in the development as well as the improvement of the condition of the assets, their management, performance and also awareness. It is also to be noted that the felt need to improve the profile of the assets also led to a scrutiny of the existing maintenance system which were used by these fields. The program confirmed the need to take into consideration the maintenance of the assets in the oil fields off the North Sea. According to the HSE, “The maintenance of asset integrity and control of the significant risk to asset integrity presented by ageing processes is a key priority for HSE” (Hse.gov.uk 2018). It is a reflection of the results of this particular that the United Kingdom has given a contract to the company Stork, a Netherland based company to “deliver an inclusive range of services and capabilities to extend the assets’ life cycle” (Bureauveritas.jp 2018). The regional Vice-President of Stork, Erik-Jan Bijvank, outlines the primary purpose of this contract in the words ““This award is substantial in terms of our combined service offering as well as the scale and volume of deliverables that will support approximately 120 onshore and offshore jobs” (Bureauveritas.jp 2018).

Asset Integrity in the Oil and Gas Industry of the United Kingdom

The first major breakthrough in the oil and the gas industry came with Edwin L. Drake, who “to the surprise and joy of everyone found he had tapped a vein of water and oil, yielding 400 gallons of pure oil every 24 hours” (Hyne 2012). This event is often considered to be the first major step for the oil and the gas. Initially, oil and gas was drilled at a level of 71 miles below the surface of the earth (Liu, Tang and Cong 2012). However, recent innovations have made drilling possible hundreds of miles below the surface of the earth (Hyne 2012). Another significant developed in the industry came with the introduction of 3D printing and the use of computers for the process of drilling (Powerasia.com.uk 2018). Recently, various companies are even trying to take the help of the various robots and other artificial intelligence (AI) system to facilitate the process of drilled. The use of robots has made drilling possible at depths where human beings were unable to do the same. It is to be noted that the present hydrocarbon resources are more diverse than the past ones and therefore, the process of their drilling requires the use of modern innovations as well as technologies. According to Martin Deffontaines (2018), “This makes innovation not an option, but rather the very purpose of Research & Development in Total’s Upstream segment”. Therefore, the modern innovations as well as technologies form an important aspect of the present day process of drilling of not only gas and oil but also for hydrocarbons. Presently, various researches are being conducted in order to increase the life cycle of the existing resources and equipments used by the major oil and gas industries of the world. It is interesting to note that there are various companies like Stork which seeks to provide services to the companies related to the oil and gas industry in a bid to enhance the life cycle of their assets and equipments.

It is to be noted that the present oil as well as the gas industry needs to make certain changes in their organization, skills and knowledge in order to cope up with the changing global scenario as well as the various health and safety regulations. The various companies related to the oil and the gas industry should try to modify their approach and policies as per the new climate of the global scenario (Bamberger and Oswald 2012). An example of this is the focus of the United Kingdom’s insistence on the process of the “Ageing and Life Extension (ALE) of oil and gas assets in the North Sea” (Powerasia.com.uk 2018). The United Kingdom rather than focusing on the purchase of new equipments to increase the productivity of its existing fields off the North Sea is trying to increase the life cycle of its existing equipments by means of effective maintenance and servicing policies. The company even has given a contract to the Netherland based company, Stork for the maintenance of its assets in the fields off the North Sea (Energy.gov 2018). Similarly, the organizations also need to come up other plans in order to reduce their cost of production and also to increase their annual profit margin. The use of the various robots and AIs can also help in the process as they can help the oil and gas companies to drill hydrocarbons at a much deeper level than the human beings. The companies can also develop the skills of the workers by providing them effective trainings and teach them about the various health as well as safety measures (Sneddon, Mearns and Flin 2013). It is to be noted that in the present times, the industry is facing several threats related to the health and safety aspect. Therefore, the organizations need to develop effective health and safety strategies and also equip the workers with effective equipments like helmets, protective clothing and others to help them work in a safer manner (Badri, Gbodossou and Nadeau 2012). The companies related to the oil and drilling sector can also take the help of the various recent technologies to ensure that they provide a safe and healthy working environment to the workers.

Technological Advancements in the Oil and Gas Industry

It is to be noted that most of the equipments installed in the oil and the gas fields off the North Sea by the United Kingdom are over the age of 20 years (Energy.gov 2018). According to the HSE official website, “Ageing is not about how old your equipment is; it is about its condition, and how that is changing over time. Ageing is the effect whereby a component suffers some form of material deterioration and damage (usually, but not necessarily, associated with time in service) with an increasing likelihood of failure over the lifetime” (Hse.gov.uk 2018). Therefore, between the years 2011 and 2013 the HSE undertook the inspection of “33 dutyholders and offshore assets across a range of installation types”. It is to be noted that the HSE found that the rate of emission of hydrocarbons on the UKCS dropped down adter the introduction of the OGUK introduced its “Step Change in Safety programme” in the year 2011. It is interesting to note that the Hydrocarbon release (HCR) between the years 2012 and 2014 showed a marker increase of 20% in the leak frequency (Energy.gov 2018). The below given figures shows the “Good practice performance measures distilled from the EC & I inspections”-

It is interesting to note that when the number of industrial accidents in the first decade of 1900 shows a staggering figure of 3,200 people getting killed in the various oil as well as gas drilling fields (Energy.gov 2018). As the United Kingdom’s official statistics, “Over 55% of remaining red light plant-related issues have been identified through rigorous operator self assessment processes that took place following the completion of KP3 inspection programme” (Hse.gov.uk 2018). It is here that the role of the various KPE program become important as they tried to reduce the number of these accidents. Another interesting statistic to note is that every 15 seconds around 151 workers in the oil and gas industries are involved in some kind of accident and around 160 million get work-related non-fatal diseases every year (Energy.gov 2018). According to the HSE official website, “ the above given statistics represents 28% of all reported major accident loss of containment events in the MARS database and equates to an overall loss of 11 lives, 183 injuries and over €170Million of economic loss” (Hse.gov.uk 2018). According to a recent study this is a reflection of the outdated model equipments used by the various oil and gas companies of the world (Hse.gov.uk 2018).

There are certain legislations which the companies related to the oil and gas industry need to follow for the process of “ageing and life extension”. The first one is the safety and the health regulation which requires the companies to take into consideration the safety and the health of the workers (Parkes 2012). For this, the companies need to effective strategies and also to equip the workers with protective equipments to reduce the damage caused to their body in case of accidents (Parkes 2012). The companies also need to ensure that the equipments used by them are in fine working and does not cause any significant damage to the workers (Friend and Kohn 2014). Then there are the several environmental regulations which the oil and gas companies need to take into consideration to ensure that the damage caused by them to the environment is minimal. This also requires the companies to check the amount of emission caused by the equipments used by them and also the precipitates released by them as byproducts. Then there are concerns about the process of “ethical use of the natural resources” (Energy.gov 2018). The companies should drill the crude oil taking into consideration the adverse effects which their drilling causes to the environment.

Conclusion

Therefore, from the above discussion it becomes clear that although the oil and gas industry is one of the most booming industries of the world at the moment yet the industry faces a considerable amount of risk. The major risk which the industry faces is primarily in the sphere of health and safety department. Moreover, the decision of the companies to use the process of ageing and life extension is a debatable one. The companies also need to take into consideration the various legislations related to the industry in order to provide effective healthy and safe working environment to the workers.

References

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Oilandgasuk.co.uk. 2018. Health & Safety Report 2017 | Oil & Gas UK. [online] Available at: https://oilandgasuk.co.uk/healthandsafetyreport/ [Accessed 8 Mar. 2018].

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Parkes, K.R., 2012. Shift schedules on North Sea oil/gas installations: a systematic review of their impact on performance, safety and health. Safety science, 50(7), pp.1636-1651.

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