More Oil Discovered
UK Oil and Gas Investments PLC (UKOG) has discovered oil near Gatwick Airport, on the Surrey-West Sussex border. The media are leading with the story .
An oil discovery in this region is not all that surprising. Oil has been produced from onshore fields in southern England for over 40 years, including the Wych Farm oilfield in Dorset. OGI seems to have drilled more deeply than its predecessors to discover this field. It claims that the underlying rock is sufficiently well-fractured that no more is needed.
3-15 billion barrels are said to be recoverable. In ‘normal’ energy units, this is in the range 5,000-25,000 TWh (TWh = terawatt hour; 1 TWh = a billion kilowatt-hours).
UKOG has been quoting the total oil content. It puts that at 100 billion barrels. This figure was possibly designed to mislead, because the contents of an oilfield are never 100% recoverable. I complained about the promoters of shale gas doing this in my blog of 19 April 2014; now the promoters of onshore oil seem to be doing it.
The UK consumes oil at a rate of 1.5 million barrels per day . So if the promoters are right, this discovery could be 6-30 times the UK’s annual oil consumption.
Costs and Risks
If this oil proves viable for commercial exploitation, it may help to keep the UK’s serious balance of payments deficit under control. But that is about all. It will have minimal effect on the world oil price.
This price has recently stayed in the range $50-60/barrel, the supply from new oilfields having brought it down from the $100 range.
The underlying problems with oil have not gone away. They are the demand for energy from developing countries, the very high-cost of current and future supply, compared to past oilfields and the insufficient rates of development of the more climate-friendly options of energy efficiency and renewables. I would not be at all surprised to see a resurgence in oil prices in at most a few years from now.
There even remains a possibility that no oil will be extracted from this deposit. The promoters have not acknowledged the risk that the oil deposit may be too deep and too difficult, given the geological and engineering factors that then come into play.
My advice is to keep on investing in energy efficiency. Unlike the uncertainty with the size and cost of future oil deposits, more efficient use of energy presents many fewer risks. One can invest £10,000 and be very confident of obtaining a 10-20%/year or higher real rate of return. The price of energy can halve and these investments are still viable.