2014-01-05 23:42:59 - Recently published research from Business Monitor International, "United Kingdom Oil & Gas Report Q1 2014", is now available at Fast Market Research
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. Crude oil, natural gas liquids and other liquids (henceforth referred collectively as oil or liquids) output fell to 949,400 barrels per day (b/d) - the UK's lowest recorded level since the 1970s. Gas production fell 7.4% to 40.5bn 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.
* The mature status of UK's upstream infrastructure, without further investment to upgrade these facilities, could see these unplanned outages reoccurring. Despite a number of new fields to be brought online according to projects currently in the pipeline, we expect this slide in production to continue into 2017 with output forecast at 726,700b/d. By 2022, output could be as low as 655,900b/d based on current rates and volumes of oil discoveries. These have taken into account the effect of fiscal changes introduced in 2012 in order to encourage production, which we expect will slow the rate of decline particularly in the second half of our forecast period from 2017 as new projects come online and hit peak production.
* Another challenge we highlight is the costs of projects in the UK: a combination of growing technical difficulty of extraction, and high labour and construction costs. Rising development costs will negate some of the benefits brought about by supportive fiscal measures.
* A further deterioration of an already-weak refining climate poses significant downside risks to the UK's refining capacity and Ineos' Grangemouth refinery currently stands the biggest risk of being shuttered. The bleak outlook surrounding the future of Grangemouth has led us to downwardly revise our forecast for the UK's refining capacity and total refined oil products output. We expect refining capacity to fall from 1.61mn b/d in 2014 to 1.41mn b/d by 2017. This would slow the rate of growth in the UK's net crude oil imports, though the faster rate of decline in domestic crude oil production to decrease in demand for crude feedstock by the country's refiners would still see the UK's total net import of crude oil trend upwards, from an estimate of 344,600b/d in 2012 to 360,600b/d in 2017.
* The UK's oil consumption is set to continue on a downward trend, from 1.56mn b/d in 2012 to 1.47mn b/ d in 2017 and 1.32mn 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. The UK's net refined oil import requirement could initially rise from 267,000b/d in 2012 to 383,000b/d in 2017 as consumption falls slower than the decline in refined oil product output. However, the faster rate of consumption decline relative to oil product output after 2017 could see net import requirement for oil products fall to 306,900b/d in 2022.
* Gas production will continue to slide, and we forecast that gas output will fall further to 34.7bcm in 2014, down from 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 31.3bcm in 2017 and 28.3bcm by 2022.
* Our downgraded gas consumption forecast sees demand rise from 77bcm in 2012 to 79.1bcm in 2013, and thereafter slowly rise to 87.3bcm in 2017 and 97.1bcm by 2022. Heating demand from cold weather will make up for falling gas demand in the power sector. 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 significant downside risks 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%.
Full Report Details at
- www.fastmr.com/prod/754724_united_kingdom_oil_gas_report_q1_2014 ..
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