North Sea on Track to Hit Targets Says Leading Oil Academic

The North Sea oil industry is on track to hit government targets previously regarded as overly optimistic in a development which would boost Chancellor Gordon Brown's Treasury coffers.

The prediction comes in new research to be published this week by the UK's preeminent oil economist.

A paper by Professor Alex Kemp, the official historian of the UK North Sea oil industry, co-written with energy researcher Linda Stephen, shows that the outlook for the maturing province is more positive than in recent years.

A combination of the high oil price stimulating exploration and appraisal work and new investment in fallow fields - where a deposit has been identified but not yet exploited - will see the industry meet the target set by Pilot, the joint government-industry body, of producing three million barrels of oil equivalent per day (mboe/d) by 2010, Kemp said.

"That's regarded by the industry as quite tough, but the work we have done indicates that if these initiatives all bear fruit, we could get this target attained, " said Kemp, Schlumberger Professor of Petroleum Economics at Aberdeen University business school.

That compares with UK Offshore Operators' Association (UKOOA) projections in January of 2.6mboe/d by 2010, which were already 0.1mboe/d higher than previously predicted. The Aberdeen team's modelling shows that with "an awful lot of effort", the industry can achieve 2mboe/d in 2020.

In the paper, to be published this week in the Oxford Review of Economic Policy, Kemp argues that government licensing and regulatory arrangements aimed at encouraging new field developments "should be pursued with vigour".

This is despite the fact that UKOOA predicts that under current depletion rates, the UK will become a net importer of oil by 2009 and may have to import gas this year.

Kemp's assessment comes in the wake of a leaked report from the International Energy Agency (IEA), the energy watchdog for industrialised countries. It raised the prospect of oil-importing governments having to impose dramatic measures, such as driving bans, shorter working weeks, reducing motorway speed limits by 25- per cent or funding free public transport.

The IEA said that net importing countries should implement emergency oil saving policies if supplies fall by even 1 to 2 million barrels a day - equivalent to the fall during the 2002 oil industry strike in Venezuela.

The IEA is concerned at the effect of possible disruptions in supply as well as the economic impact of high oil prices. Price hikes lead to greater transport and heating costs, but also add costs to manufacturing, piling upward pressure on inflation.

The upside in high prices are feeding through into North Sea activity as marginal oil fields become more viable. UKOOA and DTI surveys estimate there will be 71 exploration and appraisal wells this year compared with 63 in 2004 and 45 in 2003.

Investment bank Goldman Sachs sent energy prices soaring last week after it forecast that oil markets have entered a "super- spike" period that could see 1970s-style price surges as high as US$105 a barrel.

Benchmark West Texas Intermediate (WTI) crude has averaged about US$50 a barrel so far this year. Brent crude closed up US$ 2.21 at US$55.01 on Friday.

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