In the 1970s, the United Kingdom struck oil in its backyard.
The massive, turbulent North Sea, home to major fisheries and shipping lanes,
also happened to have several massive oil and gas fields deep underneath.
It came at the exact right time, as the UK struggled with massive trade
deficits stemming from the high price of oil. Companies rushed to
put up offshore platforms and get the oil out as fast as possible.
North Sea oil and gas was one of Britain's greatest gifts. But it was also, in a way,
one of its biggest missed opportunities. In this video, let us take a look at the North Sea.
## Beginnings
Some of the world's biggest oil giants are British. Companies
like British Petroleum, Shell, and Burmah Oil.
For decades, those oil giants mostly explored for oil outside of the British Isles. Usually
within the Empire or its zones of influence. Persia, Burma, and Trinidad, for instance.
They rarely explored inside the United Kingdom itself. In 1939, the D'Arcy oil
company discovered a few small fields in the East Midlands and one in Dorset, but that was about it.
After the Suez Crisis in 1956-1957, some multinational oil companies did
inquire about the North Sea. But at the time, the notion that the
United Kingdom might become a significant petroleum producer was a little ridiculous.
## Groningen
Then In 1959, Shell discovered the massive Groningen gas field off the shores of the
Netherlands. At the time of discovery, it was the world's largest gas field.
The Netherlands quickly switched its energy grid to using natural gas,
allowing them to close their coal mines. The field's monstrous production provided
a huge boost to the Dutch economy and helped fund its welfare state.
Recognizing that the field might belong to a larger basin of deposits,
the discovery sparked further drilling in the United Kingdom, the Netherlands and even Germany.
Some small fields were discovered in Germany and Poland but nothing as big or valuable as
the Groningen. Most of the natural gas there was either of low caloric value
or had too high a concentration of carbon dioxide or nitrogen.
For the United Kingdom however, it was a different story.
## Drawing Lines
Based on their knowledge of the Groningen's geology, drillers
guessed that there might be significant natural gas deposits off the UK's shores.
Initial reconnaissance surveys demonstrated potential. However before people can do
any drilling, they needed to first determine the lines of ownership.
So over the next few years, the UK negotiated with its neighboring states over its borders.
For the most part, negotiators chose to draw the line right at the median,
equal distance from each other's shores.
This choice had controversially lasting effects especially when it came to the
deal with Norway in 1965. There was a 800-meter deep trench near the Norwegian
shore that the UK could have used as the border rather than the median line.
Had you drawn the border at the trench,
much of Norway's vaunted oil and gas reserves would have belonged to Britain.
Now the whole thing would have gone into arbitration and who knows how
that might have turned out. But looking back,
the UK probably should have gone for it even at the cost of a few years' delay.
Not the first time in history that the British failed to draw a proper
border. But the UK never even tried, because it was in a bit of a hurry.
## The United Kingdom of the 1960s
The 1960s found the United Kingdom in a funny place. Its economy was
industrialized and developed yet also faced considerable difficulties.
Governments became increasingly pre-occupied with various negative economic measures like
the number of labor strikes, the unemployment rate and most of all - the balance of payments.
Balance of payment crises were blamed for prematurely ending economic growth periods
by causing higher interest rates, inflation and fiscal austerity.
After the war the British economy shifted from running on domestic
coal to imported oil. This was mostly due to the increased
rise of automobiles and the railway and power industries switching out of coal.
From 1968 to 1972 alone, oil's share in the UK energy market leapt 10 points to nearly 50%.
Much of this oil had to be imported. But it did not matter that much so long as oil stayed cheap.
Unfortunately, that changed in 1973 when oil prices quadrupled in the wake of OPEC's oil
embargo. From 1961 to 1970, the UK economy generated a trade surplus of about 6.45
billion pounds. 1974 alone saw a massive trade deficit of over 2 billion pounds.
Britain's desperation for oil and its balance of payments crises would be a
consistent overarching backdrop on things to come.
## Southern North Sea
The North Sea basin can be split up into three regions - northern, central, and southern. Once
the borders were settled, exploration began in 1965 in the southern region of the North Sea.
Almost immediately, British Petroleum discovered
natural gas, the first wells of what would eventually become the West Sole gas field.
Conoco quickly followed with the discovery of the South Viking gas field in December 1965. Over the
next few years, the drillers had discovered about a dozen gas fields in the southern North Sea area.
North Sea natural gas helped the nation transition some of its energy away from coal gas - gas
manufactured from coal or oil. From 1967 to 1977, 40 million appliances and 14 million customers
were converted over, including 3 million cookers, 2 million water heaters, and 1.7 million fires.
## Northern North Sea
Based on its knowledge of the Groningen, the United Kingdom
expected its part of the North Sea to be mostly natural gas. Nobody expected oil.
With the southern region now largely explored,
drillers rotated northwards to deeper waters in between Scotland
and Norway. Top management at BP and Shell - including BP's chairman - were pessimistic.
So it was to everyone's astonishment when Amoco hit upon the small Montrose oil field about
8,000 feet below in the UK sector in December 1969.
That same month, Phillips hit upon the Ekofisk field in the Norwegian area. The
field is geologically complex, so it took some time for drillers to realize the field's size.
But when they did, it immediately sparked new interest in this part of the North Sea.
Then in October 1970, British Petroleum discovered the massive Forties field, the
UK's largest oil field. Eight months after that in June 1971, Shell discovered the Brent oil field.
The Government's Fourth Round of block auctions - held around the time of the Brent discovery - saw
unprecedented interest. 228 companies applied, many of them newly formed independent companies.
The auction produced 37 million pounds in revenue. One block in the far
north - 211/11 - sold for 21 million pounds by itself. Fortunately for buyers Shell and Esso,
this block was one of the only three in the Fourth Round to produce a field - Cormorant.
## Drilling Challenges
The gas fields of the southern North Sea laid in relatively shallow seas and so did
not require new technologies. The northern North Sea on the other hand was different.
Up until then, most oil drilling had been onshore. And any offshore drilling was
done in the relatively calm seas of the Gulf of Mexico, with waters about 60 meters deep or so.
Most of those platforms had been frames made from welded steel tubes piled onto the seabed.
In the northern North Sea, you have to drill deeper - 200 meters or more - and in horrid
conditions. Wind speeds can reach 110 miles an hour. And waves can rise up to 30 meters high.
Everything needed to be modified in order to operate in this rough, hostile outside climate.
For instance, platforms needed to be enclosed, which caused knock-on effects
with ventilation, air conditioning, and dealing with natural gas leaks.
Another major innovation involved the use of reinforced concrete for better stability. You
create a heavy concrete foundation - 283,000 tons or some ten times the weight of previous frames.
Then you drop it onto the seabed. The structure relies on gravity for
stability. The rest of the foundation is bolted on top of its four supports.
The ongoing oil crises added a great deal of time pressure
and cost to the North Sea oil drillers. It is doubtful that North Sea oil would have
been economically feasible without the dramatic price increases of the 1970s.
## Production
Oil and gas extraction is, like the semiconductor industry, extremely capital-intensive.
The amount of people it directly employed was basically negligible - 26,000 at its peak,
out of a national workforce of 28 million. However from 1975 to 1983,
oil and gas investment made up 6-8% of all the investment in the United Kingdom.
This allowed the UK to become self-reliant when it came to oil from 1980 to 2004. But
oil production peaked in 1985 and then in 1999.
Natural gas production peaked shortly thereafter in 2000. It has declined since then, but going
into the current decade it still contributes a significant percentage of the British energy mix.
## British Industry
The discovery was hailed as "remarkable good fortune" for Britain. And it was.
In the two years before the oil price collapse of 1986,
the UK Government collected a peak of 12.5 billion pounds in oil and gas revenue.
The revenue is certainly nice. However, the United Kingdom missed a big opportunity to
build up its own indigenous capacity in offshore petroleum exploration.
How did it happen? At the start British industry was of course interested in
participating in the North Sea oil buildout. Many people in Britain envisioned North Sea
mobile drilling rigs and marine platforms being constructed in British shipyards.
But British industry had also just gone through a long period of quasi-socialism
after the war where making money was ... discouraged, to say the least.
As a result, these British companies knew little of the oil industry's speed, time,
cost, and scale demands - let alone being able to meet them.
Faced with this insufficiency, American oil operators invited
their existing American suppliers to come to the United Kingdom and set
up shop there. The British oil operators and government welcomed this development,
seeing the American advantage in offshore oil production as unassailable.
It took British firms several years to adjust,
and there were a few successes. The British chemicals industry, for instance. The oil
industry's demands allowed them to invest in new factories and build up capacity.
The British Steel of the 80s also greatly improved its indigenous capacity from ten years earlier.
And British engineers produced a great deal of incredible underwater production
innovations like the Vortoil separator and the ECLIPSE reservoir simulation program.
Such things are an indication that North Sea oil could have nurtured a
British offshore industry with global export potential. It
could have been a bright spot as British manufacturing continued its slow decline.
But in the end, the United Kingdom was rushing to stave off what it
believed was a balance of payments crisis. And this relegated technology
transfer and a potential domestic industry to a secondary measure.
## Norway
This is in contrast with Norway's experience.
At the start, Norway had no idea how to manage an oil industry. Their engineering
industry was less advanced than that in the UK. And From 1965 to 1975,
the Norwegian government ran a taxation system which was basically borrowed from the British.
Then in 1975, the government placed depletion controls on their oil fields,
slowing progress. In addition, they insisted on equity partnership and
technology transfer agreements with its foreign oil companies.
Major state companies like Statoil (now Equinor) and NorskHydro helped foster
native development deeper within the supply chain.
In one case, there was direct intervention to
create a Norwegian engineering company - Norwegian Petroleum Consultants - after
the initial contractor - the British firm Matthew Hall - failed to shape up.
The UK and Norwegian experiences are of course different. Namely,
the UK already had two major international oil companies of their own they wanted to protect,
and their balance of payments crisis was more dire. But it does make you wonder.
## Decommissioning
There is still oil and gas in the North Sea. Government estimates
put it at about 4 billion barrels still out there.
But many of the platforms put into place during the boom boom 1970s and 80s are coming at the
end of their useful lives. With that comes a brand new challenge: Decommissioning.
From now to the mid-2050s, an estimated 470 platforms, 5,000 wells,
10,000 kilometers of pipeline, and 40,000 concrete blocks will have to be removed. When oil prices
decline, then yet even more platforms become uneconomical and have to be decommissioned too.
The structures are large and complicated,
with steel platforms and concrete gravity sub-structures. New techniques need to be
developed in order to take apart these structures in a cost effective way.
Furthermore, there is the additional complication that many of these platforms have become
artificial reefs - gathering and hosting fish that might benefit the North Sea fishing industries.
It is estimated that by 2040, the total cost of decommissioning will
be as high as 70 billion pounds. This puts pressure on the oil companies,
who are obligated to do this legally but have no financial gain from it.
There is some discussion of leveraging the North Sea decommissioning experience to
build up British capacity in this particular industry. Able Seaton Port is becoming one
of Europe's leading ports for taking these steel structures apart and recycling them.
## Conclusion
The North Sea oil industry has been in operation for over 30 years now. It has
paid over 300 billion pounds to the UK Treasury and made the United Kingdom
an oil exporter. We cannot understate the significance of that achievement.
But People were always worried about the sustainability of the
North Sea's oil and gas supplies. But various external crises caused
the United Kingdom government to focus on getting the oil out as fast as possible.
Norway was lucky enough to be able to take its time, and With that time developed
an internationally competitive Norwegian industry up and down the oil supply chain.
Now the oil and gas are almost all gone and the equipment is being
taken down. Other than the money and perhaps the artificial reefs,
what has been the legacy of North Sea oil in British industry and history?