UK Prime Minister David Cameron (2nd right) with Regional President Trevor Garlick (left) BP Chief Executive Bob Dudley (2nd left) and Simon Richardson (right) Clair Reservoir Team Leader as they view an exploration map at BP North Sea Headquarters in Aberdeen. (PA)
BP and its partners’ £10billion ($15.7 billion) investment plan for oil and gas development in the North Sea will not be enough to offset the decline in gas production on the UK Continental Shelf, analysts said on Thursday.
The UK government on Thursday granted approval to BP and its partners – Royal Dutch Shell, ConocoPhillips and Chevron – to proceed with the development of the $7 billion Clair Ridge oilfield west of the Shetland Islands.
As a part of a $15.7 billion investment plan for the North Sea over the next five years, BP also announced that its $862 million, 5 million cubic metres per day Devenick gas field in the northern part of the North Sea was on track for start-up in the second quarter of 2012. Devenick, which is expected to supply up to 3% of the UK’s gas needs, is being jointly developed with German utility RWE.
Analysts welcomed the investment in new North Sea fields, but warned that it would not be enough to offset declining gas production. UK gas production has fallen by around 28% since 2006, amounting to 60 billion cubic metres in 2010, according to estimates by the International Energy Agency (IEA). The IEA expects UK gas production to have fallen to 42 bcm by 2015.
“There has been a dramatic decline in production over the last 10 years. We see every new find or project as good news but you need a lot more to offset the decline,” Andrew Horstead, a London-based analyst at Utilyx told Interfax on Thursday. He said the UK’s dependence on imports of piped gas from Continental Europe and LNG from overseas would continue in the future.
“The UK is currently importing around 50% of its gas. In the future, it will have to import more gas to meet its requirements. We are not going to run empty on gas, but the question is what price we will have to pay for it,” said Horstead, citing tighter global LNG supply in the coming years due to increasing demand from Asia.
The investment plan for the North Sea – which also includes the Schiehallion and Loyal fields, west of Shetland, as well as the development of the Kinnoull field in the central North Sea – will be carried out despite offshore tax increases announced by the UK government.
In March this year, the government increased the supplementary charge for oil and gas production on the UK continental shelf from 20% to 32% in order to compensate for a reduction in fuel duties. This brought the North Sea marginal rate up from 75% to 81% for oil and gas fields subject to Petroleum Revenue Tax (PRT) – which only includes fields approved before March 1993 – and from 50% to 62% for non-PRT fields. However, the government has said that it will reduce the supplementary charge back towards 20% if oil prices fall to $75 per barrel of oil.
“We have looked at the economics behind the investment and the new tax regime has been factored in. You want a stable fiscal regime for long-term investments. Nevertheless, the four new projects have been given the nod,” BP spokesman Robert Wine told Interfax on Thursday.
Analysts also highlighted the wider, positive economic implications of the North Sea investments.
“Today’s announcement highlights that there are still substantial fields to be developed in the North Sea and in BP’s case these new projects should see its North Sea production stabilise at around 200-250 thousand barrels of oil equivalent per day. The investment is also a boost for North Sea jobs and service companies with around half of the project expenditure expected to be in the UK,” analysts at Nomura Securities said in a research note published on Thursday.
$16bn UK offshore investment not enough to offset decline in production
UK Prime Minister David Cameron (2nd right) with Regional President Trevor Garlick (left) BP Chief Executive Bob Dudley (2nd left) and Simon Richardson (right) Clair Reservoir Team Leader as they view an exploration map at BP North Sea Headquarters in Aberdeen. (PA)
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BP and its partners’ £10billion ($15.7 billion) investment plan for oil and gas development in the North Sea will not be enough to offset the decline in gas production on the UK Continental Shelf, analysts said on Thursday.
The UK government on Thursday granted approval to BP and its partners – Royal Dutch Shell, ConocoPhillips and Chevron – to proceed with the development of the $7 billion Clair Ridge oilfield west of the Shetland Islands.
As a part of a $15.7 billion investment plan for the North Sea over the next five years, BP also announced that its $862 million, 5 million cubic metres per day Devenick gas field in the northern part of the North Sea was on track for start-up in the second quarter of 2012. Devenick, which is expected to supply up to 3% of the UK’s gas needs, is being jointly developed with German utility RWE.
Analysts welcomed the investment in new North Sea fields, but warned that it would not be enough to offset declining gas production. UK gas production has fallen by around 28% since 2006, amounting to 60 billion cubic metres in 2010, according to estimates by the International Energy Agency (IEA). The IEA expects UK gas production to have fallen to 42 bcm by 2015.
“There has been a dramatic decline in production over the last 10 years. We see every new find or project as good news but you need a lot more to offset the decline,” Andrew Horstead, a London-based analyst at Utilyx told Interfax on Thursday. He said the UK’s dependence on imports of piped gas from Continental Europe and LNG from overseas would continue in the future.
“The UK is currently importing around 50% of its gas. In the future, it will have to import more gas to meet its requirements. We are not going to run empty on gas, but the question is what price we will have to pay for it,” said Horstead, citing tighter global LNG supply in the coming years due to increasing demand from Asia.
The investment plan for the North Sea – which also includes the Schiehallion and Loyal fields, west of Shetland, as well as the development of the Kinnoull field in the central North Sea – will be carried out despite offshore tax increases announced by the UK government.
In March this year, the government increased the supplementary charge for oil and gas production on the UK continental shelf from 20% to 32% in order to compensate for a reduction in fuel duties. This brought the North Sea marginal rate up from 75% to 81% for oil and gas fields subject to Petroleum Revenue Tax (PRT) – which only includes fields approved before March 1993 – and from 50% to 62% for non-PRT fields. However, the government has said that it will reduce the supplementary charge back towards 20% if oil prices fall to $75 per barrel of oil.
“We have looked at the economics behind the investment and the new tax regime has been factored in. You want a stable fiscal regime for long-term investments. Nevertheless, the four new projects have been given the nod,” BP spokesman Robert Wine told Interfax on Thursday.
Analysts also highlighted the wider, positive economic implications of the North Sea investments.
“Today’s announcement highlights that there are still substantial fields to be developed in the North Sea and in BP’s case these new projects should see its North Sea production stabilise at around 200-250 thousand barrels of oil equivalent per day. The investment is also a boost for North Sea jobs and service companies with around half of the project expenditure expected to be in the UK,” analysts at Nomura Securities said in a research note published on Thursday.