When the European energy picture earns a mention in the American media, usually the focus is on the burgeoning field of renewable energy sources being adopted in countries like Germany, Spain and Italy. Renewables are not the only energy source making news, though, as Oil & Gas UK announced this week that British oil and gas investment reached its highest point in more than 30 years in 2012.
Tax breaks spur investment
Though Brent crude from the North Sea between the UK and Norway is used to set oil prices around the world, there has been an air of pessimism around the fields that produce this oil for many years.
With oil exploration and production costs much higher in the North Sea than in many other parts of the world, a long string of unsuccessful attempts in the rough waters encouraged some oil companies to turn elsewhere. Just last year, oil production from the region declined by 14 percent from the year before, and as much as 30 percent from 2010.
This drop in oil investment turned around in 2012 in part thanks to efforts by the British government, which provided a range of tax incentives for renewed exploration.
According to the Oil & Gas UK 2013 Activity Survey, investment in oil exploration in the country reached 11.4 billion pounds, or $17.3 billion, as the number of projects submitted to the Department of Energy and Climate Change nearly doubled from the year before. These numbers are only expected grow further as well, as the group projects that oil investment could reach 13 billion pounds, or $19.7 billion, this year.
"Too often we've been seen as part of the problem, rather than part of the solution because production output had fallen. But we're stopping the decline and increasing output and that will have a more positive impact on the U.K. economy," Mike Tholen, one of the authors of the report, told The Wall Street Journal.
Oil and gas exploration in the North Sea did not start in earnest until the 1960s and only began to see real returns after the oil crises in the 1970s. But at this point, the oil and gas sector has grown to employ more than 440,000 people, according to The Wall Street Journal, not to mention generating billions of pounds of tax revenue for the British government.
The projects approved over the past two years are expected to produce more than two billion barrels of oil, with around 100 billion pounds in total economic impact and 25 billion pounds in added tax revenue over the project lives. The Journal reports that daily output from these new developments could reach as much as 500,000 barrels per day by 2017.
Despite the concerns about declining output in the North Sea, recent exploration has helped increase total reserves in British waters to 7.4 billion barrels of oil equivalent, the highest point in six years. Similar discoveries have been made by Norway, which initially served to help spark interest from British oil investors.
Much of the focus in recent years, particularly in some of Europe's largest economies, has been on pushing renewable energy sources. However, Oil & Gas UK chief executive Malcolm Webb noted that current projections suggest the UK will continue to rely on oil and gas for at least 70 percent of its energy needs for the next three decades.
Persistently high oil prices worldwide are helping to spur investment in oil exploration from North Dakota to East Africa, making it more likely that a variety of new sources will come online to supply these needs.