Is This the End of an Era as UK is Compelled to Rely on Imported Oil?

The UK will be forced to rely on imported oil to meet its energy needs in 2006 for the first time in more than a decade, this being four years earlier than government predictions.

This is according to Businessonline, which has published an article of great pertinence to the notorious recent North Sea tax hikes.

The warning, reports Businessonline, comes from the International Energy Agency (IEA), the world's leading energy forecaster. It says North Sea oil production will dip below 1.7m barrels per day this year, 100,000 barrels per day below expected demand, and the UK will therefore be forced to rely on imported supplies.

The forecast, the publication continues, will add to existing concerns about energy supplies after Russia recently threatened gas supplies to Europe.

The Scotsman explains that the Russian decision to shut off gas to Europe thrust energy security into the foreground, and also emphasized the extent of the British government's failure to anticipate energy threats to the economy.

Needless to say, the forecast highlights the folly of Chancellor Gordon Brown's doubling of tax on North Sea profits in his November Pre-Budget report. Very interestingly and most alarmingly, this has apparently led to Shell's decision to cut its UK exploration and production program, and prompted every oil company in the North Sea to review its activities.

These developments will no doubt trigger off further criticism of the Chancellor's raid on North Sea profits in his November pre-budget report. "Given expected oil production this year of below 1.7m barrels per day, the UK faces the prospect of becoming a net crude importer again this year for the first time since 1992," Businessonline cites David Fyfe, IEA Supply Analyst, as commenting.

The IEA evidently sees UK oil demand for 2006 at more than 1.8m barrels per day. It expects North Sea production will only be able to match that for the first three months of 2006.

Businessonline says that output is projected to fall to 1.65m barrels per day between March and June, and to 1.55m barrels per day between July and September, before recovering to 1.66m barrels per day in the last three months.

"In the past three years, production has declined every year by more than 200,000 barrels per day," Fyfe is quoted as saying. "We are looking at the slate of projects coming up and we are not factoring in any of the unexpected outages which have happened in the past few years."

According to Businessonline, the IEA's warning raises the prospect that the government's forecasts on the decline of UK oil production are as wrong as they were about the decline of UK gas – a failure that has put the UK on the brink of a gas supply crisis this Winter.

Evidently, the UK government's forecasts do not see the UK becoming a net crude oil importer until 2010.

The business publication reports that a Spokesman for the Department of Trade and Industry, which is responsible for the North Sea, says: "We do on occasions become a net importer of oil for certain months, but for the year overall we are not net importers. We think that, by 2010, we will become net importers for the year as a whole."

Although the IEA has not completed its forecast for 2007, Fyfe maintains production may creep back above demand thanks to the Buzzard field coming on stream. But any recovery is unlikely to be prolonged.

Fyfe maintains that the Buzzard field could enable a renewed rise in UK production again in 2007, although thereafter it is difficult to see total production being sustained in the absence of further significant discoveries.

The IEA forecast is expected to come as a surprise to UK oil producers, who share the government's more optimistic forecast.

This article provided courtesy of EyeForEnergy