The latest oil and gas sales for 2017/18 are up 18.2% by output value compared to 2016/17.
Despite a small drop in output volume of 1.7% compared to 2016/17 production of oil and gas is today still 23.1% higher than the level recorded in 2014/15 when the drop in oil prices affected activity, investment and returns from the North Sea.
Scotland accounted for 96% of UK crude oil and gas liquids (NGL) production and 63% of UK natural gas production. Scotland’s combined total output from the North Sea is 81% of total UKCS production.
Decline in Southern North Sea production hikes UK dependency on imports for household heating
The Southern North sea has been historically where the bulk of natural gas was produced. With many of these fields now mature, production has declined leaving Scotland with an ever increasing share of natural gas production. Scotland’s dependency on gas imports is much less than the rest of the UK. Natural Gas is the primary heating fuel for 79% of Scottish households. Gone are the days when the Southern North Sea met the UK’s need for natural gas.
Some relief from import dependency will come from Premier Oil’s Tolmount field, one of the largest undeveloped gas discoveries in the Southern North Sea, expected to produce first gas in the last quarter of 2020.
North Sea returns to profitable production
Commenting on the statistics published today Minister for Energy, Connectivity and the Islands, Paul Wheelhouse, said:
“I welcome the findings in the report which show the sector has seen an 18.2% increase in sales value. These figures reflect the increased price of oil and gas on the global markets and show confidence is continuing to return to the sector.
“Capital investment in oil and gas fields in Scottish waters remains strong at around £6 billion in financial year 2017-18, and oil production is up slightly.
“At the same time the industry faces continuing challenges, including issues around exploration, and the Scottish Government will continue to do what we can to support the sector.
“However, the UK Government retains most of the key policy levers affecting the offshore sector, so we will continue to argue they should bring forward measures to rebuild exploration activity and to maximise economic recovery, while also providing an immediate boost to the supply chain.”
The industry has gone through a tough time, forced to adapt to the drop in world oil prices by coordinated action by, cutting costs, increasing industry collaboration and seek innovative solutions to operating in a hostile environment. A consolidation exercise has seen the emergence of smaller producers to deal with extraction from fields nearing end of life – complemented by the oil majors continuing to invest in North Sea major finds with year’s of productive capacity to come.
Speaking to industry leaders in Aberdeen and London, Oil & Gas UK Chief Executive Deirdre Michie said:
“Industry is emerging from one of the most testing downturns in its history. However, the steps that have been taken by industry, government and the regulator have delivered tangible results.
“Despite the improvements seen in recent years, we find ourselves at a crossroads. Record low drilling activity, coupled with the supply chain squeeze, threaten industry’s ability to effectively service an increase in activity and maximise economic recovery.
“We have to drive an increase in activity while continuing to find and implement even more efficient ways of working which support the health of supply chain companies whilst also keeping costs under control.
“Essential for security of energy supply, supporting hundreds of thousands of skilled jobs and contributing billions to the economy, this is a vital industry. As our Economic Report shows, with the right stewardship across the industry, it will continue to play a leading role for many decades to come.”
Oil and Gas UK’s economic report also noted operating costs have halved and are being sustained at around $15/boe. UK production is set to be 20% higher than 2014 and more major exploration and production investments have been forthcoming this year than the total for the previous 2 years.
Oil & Gas UK’s expectations of a 20% increase in production across the entire UK continental shelf suggest the 23% increase over the same period, announced today by the Scottish Government, indicates investment and production is increasing at a greater pace in Scottish waters than in the Southern North Sea.
The Newsnet view on energy policy
The Newsnet editorial view is oil and gas, whilst an important part of our energy mix, is only part of the future for this energy rich nation. Scotland must obtain full control of how energy policy develops in the years ahead as we manage the transition to renewables. With 79% of Scottish households dependent on natural gas for their main source of heat and 20% of rural homes dependent on oil the role of wind, wave and tidal will become increasingly important. The challenge is to work towards the cost of electricity to become more competitive against present fossil fuels costs and natural gas in particular.