Up to a third of oil and gas in the North Sea could be left untouched if crude prices remain low
A study by the University of Aberdeen has found that North Sea oil productivity levels may be affected for years to come by the current price collapse.
The study, which was conducted by Professor Alex Kemp and colleague Linda Stephen, highlighted possible levels of oil and gas production, field investment and decommissioning activity in the UK continental shelf.
Economic modelling was carried out with oil prices of $25, $35 and $45 a barrel, and corresponding gas prices of 20, 25 and 30 pence – all in real terms with an annual increase of 2.5 percent.
It revealed a sharp decline in total production over the period between 2019 and 2050, with the fall quickened at the lowest prices. The decline is sharper for gas prices than for oil. At the lowest prices, oil fields containing around 2.2 billion barrels of oil would become uneconomical, while annual development expenditure would fall below £1 billion by 2029.
The report states: “This study uses costs as before the effects of the COVID-19 crisis were fully understood.
“Given the current restrictions on travel and the social distancing rules it is likely that some costs will increase.
“The future of the UKCS (UK Continental Shelf) at the oil and gas prices employed in this study depends critically on technological innovations which can significantly enhance productivity.”
In response to the report, industry body Oil and Gas UK (OGUK) recently warned that 30,000 jobs could be lost as a result of the coronavirus pandemic and the low oil price.
The industry fears the problems will last much longer than the COVID-19 pandemic, and that has meant many workers are being laid off rather than furloughed.
Ross Dornan, OGUK’s market intelligence manager, said, “We know that low oil and gas prices, along with the impact of COVID-19 on operations, have created a very uncertain outlook.
“Remaining as competitive as possible to attract investment, alongside innovative and flexible approaches and business models, will be required to ensure we can not only continue to meet as much of the UK’s energy needs from domestic oil and gas, but also prepare places like the north-east [of Scotland] to fully capitalise on net zero opportunities of the future.” According to Prof Kemp’s report, 28 percent of crude in the North Sea is uneconomical at $45 a barrel. According to analysts, Brent crude is unlikely to break the $40 price point this year – meaning more pain for offshore oil, and not just in the North Sea.