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Gold9472
01-09-2006, 01:06 PM
End of era as UK forced to rely on imported oil

http://www.thebusinessonline.com/Stories.aspx?End%20of%20era%20as%20UK%20forced%20t o%20rely%20on%20imported%20oil&StoryID=33985C2F-DA1D-49F7-A86F-A0D8680409CA&SectionID=F3B76EF0-7991-4389-B72E-D07EB5AA1CEE

Richard Orange January 08, 2006

BRITAIN will be forced to rely on imported oil to meet its energy needs this year for the first time in more than a decade and four years earlier than government predictions.

The warning comes from the International Energy Agency (IEA), the world’s leading energy forecaster. It says North Sea oil production will dip below 1.7m barrels per day this year – 100,000 barrels per day below expected demand. This will force the UK to rely on imported supplies.

The forecast will add to existing concerns about energy supplies after Russia’s recent threat to gas supplies to Europe which thrust energy security into the foreground and emphasised the extent of the British government’s failure to secure the country’s future energy requirements.

It also highlights the folly of Chancellor Gordon Brown’s doubling of tax on North Sea profits in his November Pre-Budget report. As The Business recently reported, this led to Shell’s decision to cut its UK exploration and production programme and prompted every oil company in the North Sea to review its activities.

The IEA’s supply analyst David Fyfe told The Business: “Given expected oil production this year of below 1.7m barrels per day, the UK faces the prospect of becoming a net crude importer again this year for the first time since 1992.”

The IEA sees UK oil demand for 2006 at more than 1.8m barrels per day. It expects North Sea production will only be able to match that for the first three months of this year. Output is projected to fall to 1.65m barrels per day between March and June and to 1.55m barrels per day between July and September, before recovering to 1.66m barrels per day in the last three months.

The UK government’s forecasts do not see the UK becoming a net crude oil importer until 2010.

Fyfe said: “In the past three years, production has declined every year by more than 200,000 barrels per day. We are looking at the slate of projects coming up and we are not factoring in any of the unexpected outages which have happened in the past few years.”

The IEA’s warning raises the prospect that the government’s forecasts on the decline of UK oil production are as wrong as they were about the decline of UK gas – a failure that has put the UK on the brink of a gas supply crisis this winter.

A spokesman for the Department of Trade and Industry, which is responsible for the North Sea, said it was sticking to its forecasts: “We do on occasions become a net importer of oil for certain months, but for the year overall we are

not net importers. We think that, by 2010, we will become net importers for the year as a whole.”

Although the IEA has not completed its forecast for 2007, Fyfe said production may creep back above demand thanks to the Buzzard field coming on stream. But any recovery is unlikely to be prolonged.

He said: “The Buzzard field could enable a renewed rise in UK production again in 2007, although thereafter it is difficult to see total production being sustained in the absence of further significant discoveries.”

The IEA forecast will also come as a surprise to UK oil producers, who share the government’s more optimistic forecast. A spokeswoman for the UK Offshore Operators Association (UKOOA), which represents North Sea producers, said: “We believe we will be self-sufficient in oil until the end of the decade, although we are in the process of updating our figures.”

Peter Spencer, economic adviser to the Ernst & Young Item Club, which uses the same economic forecasting models as the Treasury, said the shift would be mainly symbolic for the UK economy.

He said: “What really matters for the UK economy isn’t how much oil production we have, or even oil prices, but interest rates. I’m surprised that the DTI hasn’t noticed the fact that we are running out of oil. We were in such a hurry to exploit all our oil and gas resources that we burnt it all off when prices were cheap and we are in a rather sticky situation now prices are rising.”

The IEA’s oil market report also says Chancellor Brown’s tax increase will hasten a relative shift out of the North Sea by international companies. BP, due to publish its fourth-quarter trading update this week, has been reviewing its North Sea operations in light of Brown’s hike, but has yet to reveal its decisions.

UKOOA is surveying changes to North Sea investment plans and has already discovered several cancelled projects, almost all of them in the economically marginal southern North Sea. It will announce the final results later this month.