Academics at Aberdeen University have released a study showing North Sea productivity levels may be affected for years to come by the current price collapse.
The study, which was conducted by Professors Alex Kemp and Linda Stephen, highlighted possible levels of oil and gas production, field investment and decommissioning activity in the UK Continental Shelf.
Economic modelling was carried out with oil prices of $25, $35 and $45 a barrel, and corresponding gas prices of 20, 25 and 30 pence – all in real terms with an annual increase of 2.5%.
It revealed a sharp decline in total production over the period between 2019 and 2050, with the fall quickened at the lowest prices. The decline is sharper for gas prices than for oil.
At the lowest prices, oil fields containing around 2.2 billion barrels of oil would become uneconomical, while annual development expenditure would fall below £1 billion by 2029.
Prof Kemp said: “From now until 2050 expenditure in new fields, incremental projects and exploration will be a fair amount lower than we would have expected.
“It is going to be very tough for companies, particularly those dealing with drilling, new field exploration or appraisal.
“At low prices, fields are quicker to reach the end of their economical lives.
“Although that means decommissioning costs may be lower, we are still facing an extremely difficult period for the industry.”
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Prof Kemp believes the industry’s prospects may be improved either through advances in technology or interventions by government to encourage investment.
He said: “There are two possibilities for how we might improve things.
“Technological advances have the potential to bring down the costs of exploring new development fields. There would also be the potential for productivity to be enhanced in terms of the whole operation, making it more economical.
“The Oil and Gas Training Council would have a big part to play in that.
“A second possibility would be the creation of a ‘field development tax credit’ for investors. Companies are cash-strapped at the moment and a tax credit, offered on a temporary basis, could mean more investors in the sector.
“That would require some support from government to make it happen.
“These would be important measures to help mitigate the impact of the collapse in prices.”
Oil and Gas UK marketing intelligence manager Ross Dornan said: “OGUK continues to work with governments and the OGA to understand how we can protect the sector now, support its recovery and accelerate net zero opportunities.
“We know that low oil and gas prices, along with the impact of Covid-19 on operations, have created a very uncertain outlook.
“This has resulted in difficult decisions having to be made by companies, with our recent Business Outlook Report warning up to 30,000 jobs could be lost.
“Remaining as competitive as possible to attract investment, alongside innovative and flexible approaches and business models, will be required to ensure we can not only continue to meet as much of the UK’s energy needs from domestic oil and gas, but also prepare places like the north-east to fully capitalise on net zero opportunities of the future.”
Myrtle Dawes, solution centre director at the Oil & Gas Technology Centre (OGTC) said: “Over the last three years, the developer community has been busy giving us technologies that can transform our industry.
“These include innovations in intelligent data, predictive maintenance, robots for remote asset monitoring, autonomous vessels and wearable technology; all of which can increase efficiencies, reduce costs and achieve greater decarbonisation of our industry.
“We see this within our Technology in Play series, which showcases technologies that are ready to deploy now – ultimately we need to give them the chance to show how they can help our industry both now and in the future, to enhance operations and bring the cost down of new developments.”