THE short-term outlook for North Sea oil production is rosy but output could slump in coming years, according to experts who have highlighted the potential impact of cuts in investment made amid the crude price plunge since 2014.
The International Energy Agency has predicted production will increase by 90,000 barrels per day in the UK North Sea this year as the area feels the benefit of developments that were approved before the oil price fell.
“In the United Kingdom, the short-term outlook is rosy,” said the Paris-based agency.
But the organisation added: “There is a risk of sharp decline in the not too distant future due to lack of investment.”
The comments are included in the IEA’s latest annual report on the outlook for the global market, Oil 2018, in which it noted the risk global supplies could start to come under increasing pressure from 2020.
Highlighting the impact of the deep cuts in investment made by oil and gas firms in 2015 and 2016, the organisation said: “Upstream investment may be inadequate to avoid a significant squeezing of the global spare capacity cushion by 2023”.
While the crude price has increased since late 2016 following moves by Opec members to support the market, the IEA said investment has only just started to recover.
The implications of the analysis for the UK are sobering.
The surge in demand for gas in response to the bad weather caused by the so-called Beast from the East last week highlighted the extent of the UK’s reliance on fuel from overseas.
Led by executive director Fatih Birol, the IEA noted that North Sea oil production is expected to rise to 1.1 million barrels daily in 2018-19.It is then forecast to drop by around 20 per cent to 0.9 million b/d by 2023.
The IEA said the fall in output would be due to a lack of new project start-ups.
“Over the past three years, only 10 new projects were sanctioned on the UK Continental Shelf and only two of these in 2017,” said the IEA.
The cuts in spending have caused pain across the supply chain and triggered thousands of job losses.
However, the IEA noted: “The downtrend might be about to turn.”
It highlighted the fact Shell recently approved the redevelopment of the giant Penguins field, which will involve hefty investment.
Other North Sea projects are in the approval process, including a possible extension of BP’s Clair Ridge project, which is due onstream West of Shetland this year.
“If approved in a timely manner, these could provide an offset to declines at mature fields, currently running at an average of 10 per cent,” said the IEA.
But Oil & Gas UK said:“Whilst we see investment picking up again in 2018, we remain concerned at the outlook in future years where the pace of new developments appears to slow down. “
The industry body may draw some comfort from the fact the IEA noted the success of efforts to slow the rate at which production from existing North Sea fields declines.
“A remarkable deceleration in decline rates has taken place in the North Sea and Russia,” said the IEA.
It added: “A number of redevelopment projects and efforts to reduce downtime and maximize output have paid off.”
Oil & Gas UK upstream policy director Michael Tholen said the UK North Sea had made solid strides towards improving its international competitiveness.
The IEA predicted there would be robust growth in demand for oil in coming years, driven by increased consumption in China and India.
There has been an “impressive resurgence” in US output, led by shale producers. This may not be strong enough to offset the impact of cuts in investment elsewhere and