Boston, MA -- (ReleaseWire) -- 01/09/2014 -- An uptick investment offshore is providing some relief from the overall downward trend in oil and gas production from the UK. However, without new discoveries, the recent boost to output is only likely to stem rather than reverse the decline given falling volumes from mature fields. While the industry has responded positively to the end of a moratorium on shale gas development, as well as incentives, strong opposition at the local level has already disrupted drilling plans. These challenges only reinforce our view that shale gas is unlikely to make a significant contribution to total gas output within our 10-year forecast period to 2022.
The main trends and developments we highlight in the UK oil and gas sector are:
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- Both oil and gas production continued to fall in 2012. Crude oil, natural gas liquids and other liquids (henceforth referred collectively as oil or liquids) output fell to 949,400 barrels per day (b/d) - the UK's lowest recorded level since the 1970s. Gas production fell 7.4% to 40.5bn cubic metres (bcm).
- The start of new upstream projects in 2014 should lend some support to oil and gas production over the near term. However, at present new volumes are only likely to slow rather than reverse the downward trend in output given the rate of decline from mature fields. While the response from the industry to government tax breaks has been promising, with new investment in both greenfield and brownfield projects, new discoveries would be necessary to more dramatically alter the outlook for UK oil and gas.
- The mature status of UK's upstream infrastructure, without further investment to upgrade these facilities, could see these unplanned outages reoccurring. Despite a number of new fields to be brought online according to projects currently in the pipeline, we expect this slide in production to continue into 2017 with output forecast at 726,700b/d. By 2022, output could be as low as 655,900b/d based on current rates and volumes of oil discoveries. These have taken into account the effect of fiscal changes introduced in 2012 in order to encourage production, which we expect will slow the rate of decline particularly in the second half of our forecast period from 2017 as new projects come online and hit peak production.
- Another challenge we highlight is the costs of projects in the UK: a combination of growing technical difficulty of extraction, and high labour and construction costs. Rising development costs will negate some of the benefits brought about by supportive fiscal measures.
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