By Alex Kemp, professor of petroleum economics at Aberdeen University
In 2012 the North Sea oil and gas cluster centred on Aberdeen experienced a record year of activity with total expenditure by the licensees amounting to around £20 billion.
Of this abou £11.5 billion could have been spent on new field developments. Currently a number of large, expensive field developments are in progress, including Clair Ridge, redevelopment of Schiehallion, Laggan/Tormore, Golden Eagle and Jasmine. The coincident development of these has helped to produce the record level of development expenditures.
Work on these fields will continue in 2013 and 2014. In addition there are prospects of substantial development work taking place on other major new fields such as Mariner and Rosebank. When all development work is included the total field investment levels in both 2013 and 2014 could approach those of 2012.
Over 20 fields received development approval in 2012 and a significant number will come on stream over the next two years. Thus operating expenditures should increase to over £7.5 billion in both in 2013 and 2014. With decommissioning expenditure also expected to increase it can be said with some confidence that aggregate activity for the North Sea oil cluster should continue at levels approaching those of 2012.
Exploration and appraisal activity has been relatively low in recent years, though in very recent months a welcome upturn was experienced resulting in 22 exploration and 31 appraisal wells being started in 2012. These levels are below those required to ensure that the maximum economic potential from the UKCS is realised before much of the infrastructure becomes uneconomic. It is to be hoped that the enhanced field tax allowances, particularly for small fields, will encourage further exploration.
Projecting production from the UKCS has become very difficult in recent years. On the basis of development and production plans in both sanctioned and new fields oil production could increase from around 1 million barrels per day )mm b/d) currently to 1.2 mm b/d or even more over the next few years, with gas production staying at around current levels. But in recent years technical problems in mature fields have resulted in increased field downtimes, with significant negative effects on output and tax revenues. It is difficult to forecast such events, and a continuation of technical problems could curtail any increase in production. Operators are giving increased attention to the technical problems, and it is clear that success in reducing downtimes can have a substantial effect on overall production.
Export activity from the oil and gas cluster has grown very steadily in recent years, and continued growth can confidently be expected given the buoyancy of the industry worldwide, and the growing need for subsea expertise which has been a major success story of the Scottish oil and gas cluster.