By DARA BUTTERFIELD
The North Sea is one of the most expensive places in the world to operate in for oil production companies, according to a recently released report by the International Monetary Foundation.
However, despite warnings that the slump in Brent crude oil prices – currently stagnating at around $50-barrel – would hit the UK harder than other parts of the world, the IMF’s World Economic Outlook report also said that lower oil prices are helping the UK support steady economic growth.
The organisation believes the the UK will be a ‘net beneficiary’ of the slump in oil prices.The report said:
“Canada, the North Sea, and the United Kingdom are among the most expensive places to operate oil fields. As a result, the oil price slump will affect production in those locations earlier and more intensely than in other locations.”
The IMF has said that they expect oil prices to “partially recover” over the next few years although the analysis has suggested that prices will stay around $70 a barrel until the end of the decade.
Last year, at $110-barrel, this meant a 25 year operating life for the North Sea with a 1 million barrel production per year.
But at today’s actual crude price of around $50-barrel, this means that oil production companies will start abandoning the North Sea from 2025 onwards.
However, If the IMF forecast of $70-barrel oil comes to pass, this gives the North Sea an operating life of another 15 years to 2030 before the industry’s holy grail of MER (Maximimising Economic Recovery) economic fundamentals becomes BER – Beyond Economic Recovery
The IMF report added: “Oil prices will, all else being equal, rebound to higher levels – but only gradually.”
As a result, the IMF has described Britain’s economic expansion as “steady” and “solid” – but it has cut the growth forecasts from 2.7% to 2.4% in this and from 2.3% to 2.2% in 2016. The report says that the lower oil price is to support this growth.
The report concluded: “In the United Kingdom, lower oil prices and improved financial market conditions are expected to support continued steady growth.”
COMMENT: From Maximising Economic Recovery to Beyond Economic Recovery in N. Sea – http://goo.gl/DJDv8t