The UK is heading for an "energy crunch" after new oil and gas exploration in the North Sea dropped 57pc in the first half of this year.
A report by Oil & Gas UK, the industry group, showed that companies are cutting back on new projects as costs rise and funding is scarce during the recession.
Investment in the industry fell to £4.8bn last year, down £1.2bn over the last two years, and it could drop below £3bn next year. The report estimates that £5bn a year is needed to maintain exploration.
Malcolm Webb, chief executive of UK Oil & Gas, said billions of barrels may never be extracted if the lack of investment causes oil and gas fields to shut prematurely.
"Last year, we had the credit crunch, next year we are looking at an energy crunch," said Mr Webb, whose organisation represents 85 oil and gas companies. "I'm still very concerned about the lack of investment."
Domestic reserves still account for about two-thirds of all the UK's primary energy needs, but reliance on foreign imports is increasing as domestic production is currently dropping by 5pc a year. Mike Tholen, economic adviser for Oil & Gas UK, said the fall was likely to accelerate to 7.5pc over the next few years.
In the worst case, the North Sea could provide just 500,000 barrels of oil equivalent per day by 2012 – or just 12pc of the UK's energy demand. If investment is maintained, domestic production could still meet 40pc of Britain's needs.
Oil producers believe it is still possible to extract 37bn barrels from the North Sea. However, declining investment means as little as 11bn barrels may be recovered before fields are decommissioned.
"Ministers say it would be regrettable if production is at the lower end of estimates. We think this is an understatement," Mr Webb said.
Oil & Gas UK has long been calling for the tax burden on the energy industry to be cut. At its current level, the sector provides £13bn – or 30pc – of all UK corporation tax receipts.
Chancellor Alistair Darling announced measures to incentivise exploration for new fields in the Budget, but oil companies have criticised the lack of tax breaks for existing fields.
Separately, Tullow Oil , the UK oil explorer, said revenues were expected to drop 23pc in the first half on reduced activity in the North Sea and the lower oil price.
Revenues at Tullow Oil are expected to fall to £290m in the first half, despite the development of African fields to offset falling UK production. Its share price tumbled 27, or 3pc, to 863½p.
Problems with Tullow's North Sea operations have seen output fall by 16pc to 59,000 barrels of oil a day compared with last year.
The price of US crude oil fell to a two-month low of $62 per barrel on Wednesday, on fears of slower than expected economic recovery.
Investment in the industry fell to £4.8bn last year, down £1.2bn over the last two years, and it could drop below £3bn next year. The report estimates that £5bn a year is needed to maintain exploration.
Malcolm Webb, chief executive of UK Oil & Gas, said billions of barrels may never be extracted if the lack of investment causes oil and gas fields to shut prematurely.
"Last year, we had the credit crunch, next year we are looking at an energy crunch," said Mr Webb, whose organisation represents 85 oil and gas companies. "I'm still very concerned about the lack of investment."
Domestic reserves still account for about two-thirds of all the UK's primary energy needs, but reliance on foreign imports is increasing as domestic production is currently dropping by 5pc a year. Mike Tholen, economic adviser for Oil & Gas UK, said the fall was likely to accelerate to 7.5pc over the next few years.
In the worst case, the North Sea could provide just 500,000 barrels of oil equivalent per day by 2012 – or just 12pc of the UK's energy demand. If investment is maintained, domestic production could still meet 40pc of Britain's needs.
Oil producers believe it is still possible to extract 37bn barrels from the North Sea. However, declining investment means as little as 11bn barrels may be recovered before fields are decommissioned.
"Ministers say it would be regrettable if production is at the lower end of estimates. We think this is an understatement," Mr Webb said.
Oil & Gas UK has long been calling for the tax burden on the energy industry to be cut. At its current level, the sector provides £13bn – or 30pc – of all UK corporation tax receipts.
Chancellor Alistair Darling announced measures to incentivise exploration for new fields in the Budget, but oil companies have criticised the lack of tax breaks for existing fields.
Separately, Tullow Oil , the UK oil explorer, said revenues were expected to drop 23pc in the first half on reduced activity in the North Sea and the lower oil price.
Revenues at Tullow Oil are expected to fall to £290m in the first half, despite the development of African fields to offset falling UK production. Its share price tumbled 27, or 3pc, to 863½p.
Problems with Tullow's North Sea operations have seen output fall by 16pc to 59,000 barrels of oil a day compared with last year.
The price of US crude oil fell to a two-month low of $62 per barrel on Wednesday, on fears of slower than expected economic recovery.
Source: The Daily Telegraph
No comments:
Post a Comment