North Sea industry needs to “face the facts” and accept that it must cut costs even deeper to remain competitive, a senior industry figure has said.
Hari Vamadevan, senior vice president and UK regional manager with DNV GL – Oil & Gas, also said North Sea oil production would drop off dramatically in the coming decades as fewer final investment decisions (FIDs) are being made.
Mr Vamadevan was speaking ahead of the publication of the new Energy Transition Outlook report by DNV GL, a global classification, certification, technical assurance and advisory company.
It is generally accepted that change will be needed to help meet energy demand, given that decarbonisation must take place, Mr Vamadevan said.
The report seeks to explain how the transition will occur, he said.
Its authors found that growth in energy demand will flatten after 2030 as energy efficiency will have started improving at a faster rate than GDP growth for the first time by then.
The report also shows that peak oil demand will arrive around 2022, which is much sooner than many people expect.
Mr Vamadevan said an acceleration in the adoption of electric vehicles coupled with decreasing renewable energy costs were responsible for peak oil arriving early.
He said costs would be the key driver for the oil and gas industry in future as the energy “landscape” becomes more competitive.
Mr Vamadevan said North Sea oil companies “think” they have taken out a lot of cost in the last two to three years.
But he said there would be no time for resting on laurels.
As galling as it may feel, they are going to have to take even more cost out if they wish to remain competitive.
The only way to achieve that is through greater use of automation and remote operations led by the “fourth industrial revolution” and the adoption of big data, he said.
“We have to face facts,” Mr Vamadevan said. “If you compare the global cost of oil and gas production, the North Sea is still relatively high so we will have to do more work to take cost out.”
He said European oil production, which is largely from the North Sea basin, will drop by as much as 70% by 2050.
He said output would go up in the short-term as large developments like Quad 204, Mariner, Kraken and Culzean ramp up or come on stream for the first time.
But a lack of new FIDs means production will eventually start to go down.
Mr Vamadevan said the rate of decline would accelerate after 2030.
“We will see an uptick (in production short-term), but we shouldn’t kid ourselves,” he said. “If we look at the set of projects which have made FID going forward, there aren’t many.
“I think we are going to have to work hard at taking more cost out so that more projects are viable.”
Mr Vamadevan also said that with oil demand and production expected to decline, there is no pressure for prices to go up significantly.
As such, crude prices will generally stay within the $50-$60 bracket, though there could still be some short-term spikes.
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