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United Kingdom Oil and Gas Report Q1 2012
Business Monitor International, Dec 2011, Pages: 89
United Kingdom Oil and Gas Report provides industry professionals and strategists, corporate analysts, oil and gas associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on United Kingdom's oil and gas industry.
Unexpected North Sea tax changes don’t appear to have killed off North Sea investment activity, but assets continue to move from the established players to smaller, independent operators prepared either to accept lower returns or to work the assets harder. Volumes will remain under pressure, with the UK facing a steady rise in oil and gas imports.
The main trends and developments we highlight in the UK Oil and Gas sector are:
- The UK government has approved the development of the Clare oil field, west of Shetland. This is one of the UK’s oldest undeveloped fields and should be brought into production by a BP-led consortium by 2016, with potential peak output of 120,000 barrels per day (b/d).
- BMI is assuming average daily UK liquids output for 2011 of 1.29mn b/d, though this estimate may prove somewhat optimistic given the various production and maintenance issues which undermined supply in the first half of the year. By 2016, UK oil production is unlikely to be above 1.0mn b/d. Oil consumption is expected to have reached 1.71mn b/d by this point, providing a net crude import requirement of at least 731,000b/d.
- The number of exploration and appraisal wells drilled on the UK Continental Shelf (UKCS) dropped 36% year-on-year (y-o-y) to 16 in the third quarter of 2011 (ended September 30), according to the North West Europe drilling and licensing review compiled by Deloitte. The number of wells drilled in the first nine months of 2011 fell 41% y-o-y to 37. A total investment of US$38.2bn is expected in UK oil and gas development projects during 2011.
- In September 2011, US-based Apache Corporation agreed to buy oil and gas assets in the North Sea from Exxon Mobil, including the Beryl field, for US$1.75bn. Apache is seeking to boost production in one of its most successful regions. This deal highlights the continued appetite for mature UK producing assets among independent operators. Other oil majors including BP and Royal Dutch Shell are also in the process of selling UK asset packages.
- The BMI assumption for 2011 domestic gas production is 57.0bn cubic metres (bcm), barely changed from the levels recorded a year earlier. There may be downside risk to this figure if volumes failed to recover in the second half of 2011. Gas consumption in 2011 is currently expected to rise slightly but, given the unusually cold winter of 2010/11, there is scope for gas demand to come in at slightly below the 2010 level. Medium-term UK gas demand continues to rise by 1.0-1.5% per annum, implying a need for rising imports. Should demand reach 94.2bcm by 2016, as predicted by BMI, the UK could be importing 46.2bcm of gas.
At time of writing, we assume an OPEC basket oil price for 2011 of US$101.90 per barrel (bbl), falling to US$99.40/bbl in 2012. Global GDP in 2011 is forecast at 3.2%, down from 4.3% in 2010, reflecting slowing growth in China, a faltering recovery in the US and a worsening eurozone debt crisis. For 2012, growth is estimated at 3.6%.
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