A NEW report is warning of the North Sea industry facing a “very tough” future, according to a top energy economist.
Professor Alex Kemp, of Aberdeen University, and his colleague Linda Stephen have published a new report covering the period 2019-50.
He stressed the sector’s future would depend on “technological innovations which can significantly enhance productivity.”
And prevailing low oil and gas prices threatened to drive expenditure to “extremely low levels”, leave “lots of fields undeveloped” and cause production to fall “quite sharply”.
When they published their last report in December, Brent crude was above $60 per barrel.
Back then, they outlined North Sea industry’s prospects using $50, $60 and $70 per barrel price scenarios, but the new report is modelled on much lower levels – $25, $35 and $45.
It reflects a dramatic plunge in prices due to the coronavirus’ impact on demand, the collapse of an international production deal and storage concerns.
Prof Kemp warned low prices could prevail for “a long time ahead”, resulting in “capital rationing”.
With an oil price of $25 per barrel, development expenditure would total £28.9 billion over the period, compared to £35.4bn at $35 per barrel and £52.8bn at $45, he said.
Production of hydrocarbons (oil, gas and condensate) would total 7.2bn barrels of oil equivalent (boe) at $25, 8.3bn boe at $35 and 10.5bn boe at $45.
Under the $35 scenario, the number of producing fields would sink to around 50 in 2035, from well over 200 currently, and only 38 new field developments would go ahead over the next three decades.
Of the 411 fields classed as technical reserves, or discovered fields not currently being actively considered for development, 381 fail to get over the investment “hurdle”.
Decommissioning costs would amount to £37-38bn, down from £43-47bn in the previous report, due to a reduction in new fields.