North Sea production slump casts doubt on government figures
By Ian Fraser
Published: Sunday Herald
Date: February 5th, 2006
DEMAND EXCEEDING SUPPLY
A MARKED downturn in North Sea oil production means that the UK will become a net importer of oil at least three years earlier than the government anticipates, according to new figures from the Royal Bank of Scotland.
Even the contribution from the Buzzard field — which will add about 180,000 barrels of oil per day from 2007 — is seen as insufficient to prevent a looming dependence on imported oil and therefore the vagaries of world markets.
The Department of Trade & Industry is sticking to its prediction that the UK will not become a net importer of oil on a sustained annual basis until 2010.
However, figures from the RBS Oil & Gas Index show production from the UK continental shelf unexpectedly shrank to 1.5 million barrels per day (bpd) in October, 8 per cent down on the previous month and a 14 per cent fall on October 2004.
Andrew McLaughlin, group chief economist at RBS, said: “The International Energy Agency is predicting UK demand of 1.8 million bpd in 2007. But we’ll be lucky to produce an average of 1.7 million bpd in 2005 and it seems unlikely that North Sea production is going to rise above 1.8 million bpd over the next 12 months.
“There had been a hope both in the oil industry and within government that a period of sustained high oil prices would create more incentives to produce in the North Sea. But that has not come through.
“North Sea fields are maturing rapidly and as a result the UK looks set to become a net importer of crude oil earlier than the government is anticipating. Even current high prices will be insufficient to stem the long-term depletion of North Sea fields.”
UK crude production peaked at 2.9 million bpd in 1999 but has been in long-term decline ever since. Since 2004, the UK has been a net importer of gas.
RBS’s warning follows figures from the International Energy Agency which also suggested the government’s sums are wrong. Yet McLaughlin denied a dependence on imported oil, which last happened in 1992, would jeopardise the economy. “Clearly we’re going to become more reliant on others, with a need to secure around 200,000 barrels per day of extra oil from world markets, but there’s no immediate danger.”
The news is likely to come as a blow to Chancellor Gordon Brown, whose decision to levy a windfall tax on North Sea profits prompted oil companies to review their commitment to the region.
Speaking at an RBS oil and gas conference in Aberdeen last month, the BP chief executive Lord Browne attacked the chancellor’s move. “If a windfall tax is to be applied when prices go up, the tax should be removed as prices come down.” Browne called on the the tax to be removed “immediately” if and when prices fall.
Crude oil prices eased last week after the standoff between Iran and the West over nuclear weapons was offset by a larger-thanexpected gain in US petroleum stocks. The price of Texas crude fell below $65 per barrel for the first time in three weeks after the US said it would not immediately seek sanctions against Iran.
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