UK Energy Demand to Outstrip Supply
by Ben Griffiths The Herald Friday, July 15, 2005
UK oil and gas production is set to fall this year, even as the national economy becomes increasingly reliant on the industry to meet its primary energy needs over the next decade.
That is the message from industry body the UK Offshore Operators Association, which yesterday published its annual study of the economic outlook for the North Sea's exploration and production companies.
The UKOOA has slashed forecasts for 2005 production by 5.6% to the equivalent of 3.4 million barrels per day, down from 3.6 million last year.
Estimates for this year have been trimmed by 200,000 barrels a day since January after production failed to meet expectations in 2004. North Sea production peaked in 1999 and has been in decline ever since.
The association believes that maximising the recovery of indigenous hydrocarbon reserves will help to cushion the UK from the full impact of energy price volatility.
Malcolm Webb, chief executive of UKOOA, said: "The UK's reliance on oil and, in particular, gas as primary sources of energy is increasing.
"The government's projections show the UK's oil and gas needs will rise from the current 74% of primary energy to 85% in 2020, with demand for gas for power generation growing by around 60% over the same period."
Despite more conservative production expectations, overall investment in the domestic oil industry is expected to rise this year to around pounds -9bn from pounds -8.4bn in 2004.
Mike Tholen, economics director at UKOOA, also predicted that investment may rise even higher as more independent smaller companies flood to the North Sea to look for oil while global prices are so high.
According to UKOOA estimates, there could be still be the equivalent of around 28 billion barrels of oil in the UK continental shelf yet to be found and produced.
As well as the influx of new industry players looking to establish themselves in the North Sea, the household names of the domestic oil industry are keen to extend the life of their assets in the region.
Together, the likes of BP and Shell are planning to spend around pounds -500m a year extra to keep their facilities running for another 25 to 30 years.
Tholen said: "From our perspective, we are doing our best . . . to ensure we meet the demands of the nation."
As the UK cannot produce enough oil and gas itself it has to import some. The UKOOA has warned that if the nation had to import enough oil and gas to meet all of its needs each year, the national economy would be around pounds -30bn a year worse off, increasing the current trade deficit by almost 75%.
According to the report, the UK offshore industry provides employment for 260,000 people, about a third of whom are based in Scotland.
Exploration during 2002 and 2003 dipped due to a lower oil price and increased taxes, meaning there are few production projects coming on line in 2007 and 2008.
The industry is seeking assurances from the government that there will be no more shocks to the fiscal regime in terms of taxation that could seriously damage investor confidence in the UK market and further dampen exploration activity
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