Oil & Gas UK's 2008 economic report highlights buoyant exploration and production activity on the UK continental shelf (UKCS) and strong exports of UK oilfield goods and services. Importantly, it also points to the need for the Government and industry to work together to help ensure not only increased, but more productive investment in the UK offshore oil and gas industry if the UK is to unlock the full potential of its remaining oil and gas reserves. The sector currently provides 70% of the country’s energy supply and benefits the UK balance of payments to the tune of £45 billion a year. It is by far the largest single industrial UK investor and supports over 450,000 highly-skilled jobs.
For the first time, the report paints a comprehensive picture of the well-established supply chain as well as the production environment. This year, the industry will pay around £21 billion in taxation on both production and the wider economic activities of the UK supply chain, while the value of exports of oilfield goods and services will reach around £4-5 billion.
The visit in May of Prime Minister Gordon Brown and his Chancellor Alistair Darling to a meeting of the Oil & Gas UK Board reflected the significant role the UKs offshore oil and gas industry still plays in the UK domestic and global economy and the importance of tapping the full potential of the UK's remaining reserves.
"There is little doubt that the need to maximize recovery of the UKs remaining oil and gas reserves is a matter of national importance and one that is well understood by Government at the highest level," said Chief Executive Malcolm Webb.
The report highlights that during the past seven years, the dynamics of the oil and gas industry have changed dramatically. Oil and gas prices have risen nearly threefold since 2001 but in the UK these rising prices have been accompanied by very large increases in costs. The cost of developing a barrel of oil or gas on the UKCS has risen fivefold while the operating cost per barrel has doubled.
Oil & Gas UK notes that the industry spent £12.4 billion in 2007 on exploration, development and production including significant investment in asset integrity to extend infrastructure life. While this total expenditure was the same as in 2006, it disguises a worrying drop in the money spent bringing new reserves into production, which fell from £5.5 billion to £4.9 billion in 2007. Furthermore, significant cost inflation means that this capital is only a third as efficient as five years ago, resulting in fewer new reserves being brought into production.
The UK remains a significant oil and gas producer on the world scene, recovering 2.8 million barrels of oil equivalent (boe) per day in 2007, more than any of Kuwait, Brazil or Angola. While domestic production declined by 4% in 2007, it still satisfied 75% of the UK's gas consumption last year and meant that the country was self-sufficient in oil. Production is forecast to drop only slightly in 2008 as several large projects reach full production. On current trends, production decline is expected to average 5% over the next five years.
Oil and gas companies plan to invest around £21 billion over the next five years, targeting around 2.7 billion boe of potential developments in addition to the 7.1 billion boe which are currently onstream. Oil & Gas UK believes there could ultimately be up to 25 billion barrels to recover but to reach that goal substantial investment and exploration activity will be required over and above the current plans.
"The UK's oil and gas basin contains up to 25 billion barrels of oil and gas that we could ultimately recover. Plans currently in place should reach about 10 billion of those barrels so the challenge in the hands of the Government and industry is how to achieve the remaining 15 billion barrels. While realizing this goal will require massive further investment from the industry, at $100 per barrel, it is worth $1.5 trillion to the British economy and this is a prize which the country should not contemplate losing," added Webb.
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