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North Sea oil could last longer than expected

The industry body Oil & Gas UK recently published its annual forecast of offshore oil and gas exploration and development activity in the UK, based on a survey of the spending plans of over 70 companies. 

It revealed that the number of offshore oil and gas projects currently under consideration for development has risen sharply over the last 12 months, showing that there is still life in the UK oil and gas fields.  However, the survey shows that reserves being developed or in production have declined, as possible new projects fail to meet companies’ economic criteria. This, according to the report, highlights continuing concern about the UK’s ability to attract the necessary investment to maximise the recovery of its oil and gas resources.

The UK's own oil and gas production still has a major role in energy supply.

Oil & Gas UK believes that up to 25 billion barrels remain to be won from the UK continental shelf. Business plans developed over the latter half of 2009 have identified up to 11 billion barrels of oil and gas in new and existing projects, a 15 percent increase over 2008 and requiring total capital expenditure of £60 billion. Provided this investment can be secured, the industry could still be delivering 1.5 million barrels of oil and gas per day in 2020, enough to satisfy half of total UK demand.

The industry faces two challenges in this.  Firstly, time is not on its side: if the infrastructure needed to maximise recovery is to be preserved, £25 billion capital spend must be delivered within the next five years.

Secondly, the UK’s proven reserves in existing and sanctioned projects currently stand at 5.25 billion barrels, down from 6 billion barrels in the last survey, while those classed as ‘probable’ or ‘possible’ which have not yet attracted investment approval, increased by 60 percent to around 6 billion barrels. How long the UK continues to operate as a significant oil and gas province will depend, crucially, on its ability to convert its discoveries into ‘proven’ reserves while at the same time ensuring a healthy crop of possible new developments are brought into company plans through steady exploration.

Mike Tholen, Oil & Gas UK’s economics director and author of the report, said: “The increase in the number of new UK oil and gas developments under consideration is, on the one hand, encouraging.  It confirms our belief that the province, whilst mature, has decades still to flourish.  This is a high technology industry and companies have developed and continue to deploy the best and most advanced technology to unlock the UK’s oil and gas resources.  However, even that is not proving enough, illustrated by the production decline and falling investment seen over recent years.  Things are made no easier by the fall in wholesale gas prices which have halved over the last year.”

The UK produced 2.48 million barrels of oil and gas a day in 2009, down 6 percent on 2008 and reflecting the 20% slowdown in capital expenditure since 2006.  However, Oil & Gas UK believes investment could pick up in 2010, even rising above £5 billion from £4.7 billion in 2009. 

The report notes that the industry can help the UK as it emerges from the current recession, contributing £7 billion in production taxes (equal to 20% of total UK corporation taxes) and supporting employment of around 450,000 people across the UK (approximately 45% of them in Scotland).  It remains the UK’s largest industrial investor, spending a total of £12.3 billion in exploration, development and production operations.

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Posted in Energy supply and security, Oil, UK industry

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