The decline in oil prices could have a substantial adverse effect on the oil and gas industry in the UKCS (UK continental shelf) a leading industry expert has warned.
Research by Professor Alex Kemp and Linda Stephen from the Aberdeen University has found that if the current drop in price continues, there will be reduced investment and production.
Using economic modelling, the pair highlighted two scenarios which reflect investment screening prices.
The report said: “The first is $90 per barrel (of oil) and 58p per therm (of gas) in constant real terms (at 2014 prices).
“In this case, the oil price in money-of-the-day terms increases annually by the inflation rate to reach $219 in 2050 which is the end year for the modelling in the study.
“In the second scenario, the investment screening prices are $70 per barrel and 45p per therm, again in constant real terms.
“In this case, the oil price in money-of-the-day terms increases annually to exceed $170 in 2050.
“The study finds that in the $90 investment screening price scenario field development expenditure will in any case decline over the next few years, but with the $70 screening price the decrease will be sharper.
“Production will thus be less in the medium and longer term.
“The study shows that the prospective declines in activity are substantial in the near term as well as over the long term period of the study.
“In the near term, the behaviour of production is very sensitive to the degree of success achieved in raising production efficiency from its recent low levels as discussed in the Wood Review.”
The report calls for tax incentives to reduce the prospective major falls in field investment and exploration, and effective regulation to enhance production efficiency.
It also calls on the industry to create cost reduction initiatives.
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