A director at Oil and Gas UK has said that lower oil prices and the impact of the credit crunch could hit North Sea capital investment next year.
Mike Tholen, the industry body’s economics director, said yesterday: “The North Sea is an expensive oil and gas province in which to operate and obviously investment will become more uncomfortable as oil prices fall.
“Capital investment in the North Sea is already set to fall by 11% this year to £4.7billion from £5.3billion in 2007.
“The extent to which it will fall further in 2009 will depend both on the longevity of this period of lower prices and also the business conditions which UK oil and gas producers face.”
Mr Tholen said falling commodity prices – including those of raw materials required for oil and gas developments, such as steel – would take some time to filter down and reduce the cost of the developments.
“Some companies will also have been left unable to access debt finance as a result of the credit squeeze.
“These trends underline the importance of UK Government incentives to boost investment if the industry is to secure full recovery of the country’s remaining oil and gas reserves in the longer term,” he added.
It has been claimed that, of 170 new oil and gas exploration projects planned for UK waters, up to 60 could be delayed indefinitely because they are no longer considered economic. The price of Brent crude was down nearly $4.50 a barrel yesterday at $57.43, but the good news for the North Sea industry is that oil is expected to return to $100 a barrel once the world economy recovers.
The International Energy Agency also reckoned that, by 2030, prices would exceed $200 a barrel.
Last week, one industry expert said there would be significant knock-on effects for the oil and gas business on the UK continental shelf if problems in financial markets persisted.
A new study by Professor Alex Kemp and Linda Stephen, of Aberdeen University, highlighted long-term prospects for activity levels in British waters under different oil and gas price scenarios and costs of capital.
The results showed activity levels were very sensitive to both variations in oil and gas prices and the costs of obtaining loan and equity capital.
Depending on a variety of circumstances, the number of fields and projects that could be developed from 2008-35 may vary between 85 to more than 600.
Total production in this period could also vary between 9billion barrels of oil equivalent to nearly 20billion.
Prof Kemp said an oil price of $80 upwards could lead to maximum output.
Recommended for you
