COMMENT: From Maximising Economic Recovery to Beyond Economic Recovery in N. Sea

COMMENT

Introduction to Economics Foundation Course, 2015-2025 North Sea Further Education College

From Maximising Economic Recovery to Beyond Economic Recovery 

oil desert

Too many senior people in the North Sea oil industry – who should ken better –  are presently behaving like the Three UnWise Monkeys cross-bred with ostriches.

They are sticking their heads in the sand, holding their hands over their eyes and ears and refusing to accept the harsh economic facts of life

At $50-barrel, North Sea operators will only pump half what they would have done when crude oil was worth $100-barrel.

The Maximising Economic Recovery (MER) mantra of the Wood Review is being rapidly overtaken by the market fundamentals of BER – Beyond Economic Recovery.

Consequently, the North Sea oil and gas exploration companies are running around  on borrowed time in a 20-year old BMW.

When new, it was a quality, high-spec, fit-for-purpose vehicle. And it has provided great service with low-cost maintenance over the decades – thanks to initial high-quality engineering and regular servicing. But it was worthless at 10 years old.

However, it’s been worth patching and fixing-up short-term temporary repairs to the vehicle at $100-barrel as it nears and passes by its planned natural lifespan.

But at $50-barrel, the North Sea infrastructure is mostly beyond economic repair.

Notwithstanding a few, one-off, exceptionals such as BP’s £650 million re-boot to extend its Eastern Trough field, it will be interesting to see how many other ‘end of life’ me-too re-boots are to come.

There is a tipping balance which every driver knows comes at some point in their motor’s life when the cost of the repairs (aka ‘lifetime extension’) simply puts it beyond economic recovery.

The (increasingly) short fundamental economic facts of life for the North Sea here are these:

The longer crude oil price stagnates at $50-barrel, the shorter the remaining operating, productive, economic lifespan of the North Sea oil and gas industry.

As a supremely ironic political by-product, it could be that the SNP-run Scottish Government holds another Scottish Independence Referendum around 2020 in the final year of the next Scottish Parliament session – just as the oil truly does begin to run out… (but for reasons which have nothing to do with Independence!)

See also: IMF says North Sea is one of the world’s most expensive oil and gas fields, as it forecasts sluggish crude price recovery to $70-barrel – http://goo.gl/2LfQQN

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