Third Party Access to Infrastructure and the Future Recovery of Oil and Gas Reserves in the UKCS

Professor Alexander Kemp, University of Aberdeen

The importance of ensuring effective mechanisms to allow third-party access to infrastructure in the United Kingdom Continental Shelf (UKCS) has been understood since the early years of North Sea oil and gas exploitation, both in helping reduce the overall development costs of new fields and avoiding the proliferation of pipelines.  In recent years, third-party use of the existing infrastructure has grown substantially. Because of the small size of the majority of the new fields in the UKCS, it is increasingly important in ensuring that maximum economic recovery can be attained.

The UK government recognizes the potential effects of monopoly power being used by infrastructure owners and has within the 2011 Energy Act taken some new powers to intervene.  The approach taken in the UK remains based on a voluntary approach.  The Industry’s Infrastructure Code of Practice (ICoP) is meant to guide bilateral negotiations between existing infrastructure owners and potential third party users, with government intervention envisaged only when these fail.

The current voluntary system is still perceived by some to have a number of weaknesses for third party users of the existing infrastructure, particularly in terms of the delays involved in procuring agreement between the parties and the potential affects this has on incentives to exploit marginal fields and to reinforce the infrastructure.

The aim of this paper is to evaluate the impact of the current system on the exploitation of the remaining resources in the UKCS and compare it with alternative approaches, such as that used in the Norwegian gas network where tariffs to infrastructure owners are regulated.  A mathematical programming approach is used to model the efficient exploitation of potential remaining resources in the UKCS and the associated pipeline network, drawing on field data from the UKCS relating to current producing fields and estimates of future potential recoverable resources. The effects on future exploitation of the remaining resources of the current regulatory regime and alternatives such as average cost pricing are considered using a variety of constraints to capture the impact of different possible institutional structures.  The effects of the high rates of taxation on tariff income are also examined.