London—The UK oil and gas industry has the potential to approve new North Sea projects holding a combined 700 million barrels of oil equivalent by the end of 2022, but requires both a stable market, and regulatory and governmental support, industry group Oil & Gas UK said March 16.
The comments, in an annual outlook report by the industry's representative body, came as the sector is under pressure to curb its emissions in the run-up to COP26 climate talks in Glasgow in November, and as the government reviews the system of North Sea licensing.One newspaper at the weekend suggested the government could even ban new exploration licensing, although this was played down by the Department for Business, Energy & Industrial Strategy.
In its report, OGUK forecast a further decline in oil and gas production of 5%-7%/year in both 2021 and 2022, following a 7% decline in oil output last year. It cited a drop in investment levels in recent years, as well as high levels of maintenance that will crimp production this year.
Project investments that stemmed from high oil prices up to 2014 have largely exhausted their capacity to support output, OGUK said, going on to highlight a number of projects being considered for approval by upstream companies.
"It is likely that following recent increases, the basin is entering a period of longer-term production decline and a steady stream of investment in new fields is required to ensure the effective management of decline rates," OGUK said.
"There are a range of opportunities being considered for investment approval in 2021 and 2022, but they are contingent on greater market stability and continued regulatory and government support," it added.
"These projects could unlock in the region of 700 million boe... and therefore represent a significant opportunity to help manage the basin's production profile and contribute towards security of UK energy supplies."
OGUK estimated capital expenditure by the industry had fallen by 33% in 2020 to GBP3.7 billion ($5.1 billion) and said most companies in the sector were in a fragile state.
Capex cuts would take a while to fully impact production levels, it added, forecasting that up to eight new projects will start producing this year, with combined peak production of 130,000 boe/d.
However, OGUK highlighted one further bright spot: a recent flurry of M&A activity in the sector that has totaled around GBP2 billion so far this year. OGUK chief executive Deirdre Michie said in the report: "The success of the vaccination program means that a more positive outlook is beginning to evolve for our industry, for the economy and for society as a whole."
The UK upstream industry is home to the S&P Global Platts Dated Brent benchmark and produced just over 1 million b/d of oil last year, while also meeting about half the country's gas needs.
