2013-10-12 11:03:48 - New Energy market report from Business Monitor International: "United Kingdom Oil & Gas Report Q4 2013"
An uptick investment offshore is providing some relief from the overall downward trend in oil and gas production from the UK. However, without new discoveries, the recent boost to output is only likely to stem rather than reverse the decline given falling volumes from mature fields. While the industry has responded positively to the end of a moratorium on shale gas development, as well as incentives, strong opposition at the local level has already disrupted drilling plans. These challenges only reinforce our view that shale gas is unlikely to make a significant contribution to total gas output within our 10-year forecast period to 2022.
The main trends and developments we highlight in the UK oil and gas sector are:
oil and gas production continued to fall in 2012. Oil output fell to 1.01mn barrels per day (b/d) - the UK's lowest recorded level since the 1970s. Gas production fell some 6.38% to 40.53bn cubic metres (bcm).
* The start of new upstream projects in 2014 should lend some support to oil and gas production over the near term. However, at present new volumes are only likely to slow rather than reverse the downward trend in output given the rate of decline from mature fields. While the response from the industry to government tax breaks has been promising, with new investment in both greenfield and brownfield projects, new discoveries would be necessary to more dramatically alter the outlook for UK oil and gas.
* Technical glitches in mature but critical projects such as the Cormorant Alpha platform and the Brent pipeline system are expected to hit output further in 2013 and alongside natural decline, will see the UK's oil output dip below 1mn b/d to 906,990b/d in 2013.
* Although the long-term output trend is a downward one, we forecast that fiscal incentives will see a gentler fall in production as drilling activity picks up. Indeed, industry data indicated that a new record amount of investment, more than GBP20bn (US$30bn) was to be directed toward the North Sea. However, this uptick in investment was due to slow from 2015 onwards. By 2017, we expect output to average at 785,930b/d. By 2022, output could be as low as 715,690b/d based on current rates and volumes of oil discoveries.
* The UK's oil consumption is set to continue on a downward trend, from 1.52mn b/d in 2012 to 1.40mn b/ d in 2017 and 1.30mn b/d by 2022. This is a result of weak economic growth and greater fuel efficiency. It means that the UK will have a smaller domestic market that could further dampen the economics of downstream production. However, this could help alleviate the UK's long-term current account position if it helps contain the country's oil import needs.
* Gas production will continue to slide, and we forecast that gas output will fall further to 36.5bcm in 2013, down from an estimate of 40.5bcm in 2012, owing to a natural rate of decline. As with oil, tax incentives should lead to a deceleration in output declines. Gas output is forecast at 31.2bcm in 2017 and 28.2bcm by 2022. Our downgraded gas consumption forecast sees demand fall from an estimate of 77bcm in 2012 to 76.1bcm in 2013, but thereafter slowly rise to 78.5bcm in 2017 and 84.2bcm by 2022. This revision has been made in light of a large decline in gas demand from the power sector as a result of poor margins from gas-fired power generation. However, the increase in consumption that we expect is underpinned by a policy emphasis on gas in the UK's energy mix. A failure by the government to provide clear incentives to steer the sector towards this poses a downside risk to our forecast.
* Alongside an end to a moratorium on hydraulic fracturing (fracking), a budget supportive of shale gas exploration and production (E&P) is likely to further stimulate interest in the UK, which is leading the push to embrace shale gas in Western Europe. In 2013, Chancellor George Osborne announced that a new field allowance for shale gas will be introduced that could slash the effective tax rate from 62% to 30%.
* While support for shale gas has remained strong at the national level, protests at drilling sites has already disrupted drilling programmes before fracking has even taken place. The strength of local opposition, motivated by environmental concerns associated with the fracking process, is an indication of the challenges ahead despite the end of the moratorium. We expect campaigns against fracking will slow progress on proving up the UK's unconventional potential, and only serve to reinforce our view that progress on shale gas in the UK is set to come slowly.
Full Report Details at
- www.fastmr.com/prod/689018_united_kingdom_oil_gas_report_q4_2013 ..
At the time of writing we assumed an OPEC basket oil price for 2013 of US$109 per barrel (bbl), falling to US$101/bbl in 2014. Global GDP in 2013 is forecast at 2.5%, up from 2.9% in 2012, reflecting some recovery in the US, though uncertainty with regard to the eurozone debt situation will continue to hamper growth. For 2014, growth is estimated at 3.1%.
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