Boston, MA -- (ReleaseWire) -- 04/10/2014 -- An uptick in offshore investment is providing some relief from the overall downward trend in oil and gas production from the UK. While we see a small boost to oil production from 2017 onwards based on current projects in the pipeline, without new discoveries and given falling volumes from mature fields, this will likely only stem the decline or lead to a small-scale and temporary increase in the country's oil production While the industry has responded positively to the end of a moratorium on shale gas development, as well as to 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 before the tail-end of our forecast period.
The main trends and developments we highlight in the UK oil and gas sector are:
- Both oil and gas production continued to fall in 2013. We estimate that crude oil, natural gas liquids and other liquids (henceforth referred to collectively as oil or liquids) output fell to 864,240 barrels per day (b/d) - the UK's lowest recorded level since the 1970s. We estimate that gas production fell 5% to 38.5bn cubic metres (bcm).
- While we expect the crude production to continue to decline into 2017, we believe that the rate of decline will ease in 2014, with a number of small fields to be brought online according to projects currently in the pipeline. This will partly offset the reduced output from the region's mature fields. As such, we expect a 5% production decline year-on-year (y-o-y) for 2014, as opposed to an estimated 9% decline in 2013. We forecast crude production to decline to 777,430b/d in 2016.
- From 2017 onwards, we could see a small increase in oil production in the second half of our forecast period as new projects come online and hit peak production. We forecast that production could increase from 777,530b/d in 2016 to a high of 873,570b/d in 2018, before slowly declining to 782,890b/d in 2023. These have taken into account the effect of fiscal changes introduced in 2012 in order to encourage production. On the whole, however, 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. In addition, the mature status of the UK's upstream infrastructure, without further investment to upgrade these facilities, we could see unplanned outages reoccurring.
- 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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