UK Oil Industry At The “Edge Of A Chasm”
Oil & Gas UK, an industry trade group, said in a new report that the North Sea is entering a period of “super maturity.” The North Sea has been a source of sizable oil production for decades, but it is long past its prime.
The UK’s offshore sector is already a shadow of its former self. Consider this: three decades ago the UK produced twice as much oil from its offshore sector than it does today, and that oil came from one quarter of the number of fields. That was possible because the fields of yesteryear were large – on average five times the size of new discoveries today. The industry is now merely picking over the remaining scraps of the North Sea, most of which comes at great expense.
Maturing and high-cost oil fields had significant challenges before the oil price downturn. But at current prices, half of the UK’s North Sea oil fields are not recovering even their operating costs. The number of fields expected to be shut down between 2015 and 2020 increased by 20 percent since last year. The worrying thing from the industry’s perspective is that as fields cease production, the cost of maintaining infrastructure – often shared among producers – stays the same, raising the costs for the remaining players. That could lead to a “domino effect” that spread to other companies. In 2015, 21 oil fields shut down because of low oil prices.
If companies are not able to even cover their operating costs, investing in new fields makes no sense at all. Oil & Gas UK estimate in their report that the sector will see less than £1 billion in investment in 2016.
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