A relative minnow has underlined the potential of the North Sea’s undeveloped gas resources just as their value has been evident amid the fallout from the Ukraine war.

However, while the onus is on ministers to ensure we make the most of the North Sea, it does not mean they should pay any price that oil and gas firms may demand if they are to commit to projects.

IOG passed a landmark in a remarkable development process earlier this month when it started production from two gas fields in the North Sea.

READ MORE: North Sea gas field start-up welcomed amid fallout from war in Ukraine

These form part of a project involving a series of finds that had been left undeveloped for decades, which the former Independent Oil and Gas nurtured through the downturn triggered by the slump in the crude price from 2014.

HeraldScotland: Picture: IOGPicture: IOG

US billionaire Warren Buffett provided a stunning endorsement for IOG’s vision in 2019 when his CalEnergy Resources paid £40 million to buy into the project and agreed to cover up to £125m costs.

IOG had a market capitalisation of around £50m before the deal was announced.

The backing helped the company to press on after facing challenges with a project that involved recommissioning a disused pipeline as well as installing new facilities. The work concerned provided a boost for the supply chain, even if it was completed relatively quickly after IOG secured the required financing.

The speed of the process provides a reminder of how quickly finds can be developed in the North Sea where there is lots of production infrastructure in place.

It undermines the argument made by the Climate Change Committee in a recent report that development timescales mean North Sea exploration activity can not result in production being boosted quickly enough to have any impact on market conditions. This was seized on by campaigners who appear to be opposed to the oil and gas industry on ideological grounds.

In an update issued this week IOG confirmed that the outlook for the project is good. Production to date has been encouraging and drilling work on another find is set to resume.

READ MORE: North Sea firms generate bumper profits as gas price surge fuels windfall tax calls

IOG and CalEnergy Resources are now set to capitalise on the dramatic increase in gas prices fuelled by the recovery from the pandemic, which was given fresh impetus by the Ukraine war.

The fields concerned may never produce a huge amount of gas in the global scheme of things. Nonetheless the production from them will help to reduce the UK’s reliance on imports, which may entail higher emissions, at a time when the associated risks have never been clearer.

If European countries are going to wean themselves off Russian gas the competition for alternative sources is going to become ever more intense.

Germany has begun making preparations to ration gas following Russia’s attempt to compel buyers to pay for supplies in roubles.

A new analysis by North Sea industry body Offshore Energies UK (OEUK) this week highlighted just how dependent the country is set to become on imports of oil and gas and the resulting implications for energy security.

HeraldScotland: Offshore Energies UK chief executive Deirdre Michie, left, visits ProServ's plant in Aberdeen Picture: OEUKOffshore Energies UK chief executive Deirdre Michie, left, visits ProServ's plant in Aberdeen Picture: OEUK

In its flagship Business Outlook report OEUK warned: “Production of oil and gas will fall by up to 15 per cent a year unless there is rapid investment in new infrastructure. This decline is much faster than the predicted reduction in UK energy demand so, if there is no such investment then, by 2030, we will be reliant on other countries for around 80% of our gas and 70% of our oil.”

OEUK noted history was made last year when Norway became the single largest supplier of gas to the UK. This was the first time that supplies from any one country exceeded domestic production.

The prospect of any serious disagreement with Norway may be minuscule. However, OEUK’s market intelligence manager Ross Dornan observed that production issues in Norway or pipeline complications could leave the UK scrambling to try to source alternative supplies.

READ MORE: Oil firm highlights potential of big undeveloped finds off Shetland

He told journalists firms are considering investing in a range of North Sea projects. While most would involve relatively small scale developments close to existing fields, bigger developments may be on the agenda.

Shell has indicated it would be prepared to invest big sums in the North Sea by submitting revised plans to develop the giant Jackdaw find east of Aberdeen to environmental regulators. The Offshore Petroleum Regulator for Environment and Decommissioning declined to support the original proposal.

HeraldScotland: Shell chief executive Ben van Beurden Picture: ShellShell chief executive Ben van Beurden Picture: Shell

Shell yesterday won an extension to the licence covering the giant Cambo oil field off Shetland, which the company said would allow time to evaluate relevant project options. It shelved plans for a development last year after facing fierce opposition from environmentalists.

After prevaricating for months, First Minister Nicola Sturgeon said the Cambo development should not be approved. In her efforts to keep greens onside in the SNP’s bid to separate Scotland from the rest of the UK, Ms Sturgeon has created the impression that the government she leads would oppose any new North Sea developments.

The SNP based its 2014 referendum campaign on the claim the North Sea's oil and gas resources would ensure prosperity for an independent Scotland. Tax receipts plunged amid the downturn that started that year.

The Scottish Government does not have control over the North Sea licensing regime. However, concerns about what it may be able to do in future could deter firms from making the long term investments required to make the most of the North Sea’s reserves.

OEUK chief executive Deirdre Michie said this week: “We need a consistent consensus from policymakers across all parties, and all four nations, so that we can continue making progress toward our net-zero goals.”

Oil and gas firms have shown they are keen to develop renewable energy capacity in the North Sea as well as hydrocarbons.

READ MORE: Oil giants hail ScotWind success amid claims huge boost to supply chain in prospect

Ms Michie praised Chancellor Rishi Sunak for resisting calls for him to impose a windfall tax on North Sea firms, which have received a huge boost to their profitability as a result of the surge in oil and gas prices.

After posting a $1.4 billion annual profit recently, North Sea-focused Neptune Energy said it expected gas prices to remain at very high levels in the medium term - by which it was understood to have meant two years or so.

Against that backdrop, Ms Michie’s claim that a windfall tax would put firms off investing in the North Sea may ring hollow to some.

The fear that there could be an outright ban on North Sea developments in coming years, which the SNP Government has done nothing to dispel, may prompt firms to give up on the area.

The prospect that a tax regime that is reckoned to be one of the most supportive in the world may be tweaked to take account of the huge change in market conditions seen in recent months will likely be much less concerning.