Oil prices may have stabilized after plunging in response to the coronavirus but are unlikely to rise much in coming months according to experts who have highlighted the grim implications of their analysis for the North Sea.
The Rystad Energy consultancy said production curbs agreed by major exporters could help put a floor under crude prices amid signs that demand has started to recover following moves to ease lockdowns around the world.
Brent crude traded at $35.68 per barrel yesterday afternoon, up $0.55/bbl on the day. It fell to an 18-year low of $15.98/bbl in April.
North Sea spending to fall by £10bn a year following oil price plunge
“As the crude markets are rebalancing now in June, according to our latest crude supply-demand balances, the focus in the markets will shift to the speed of the recovery,” said Rystad’s head of Oil Markets Bjornar Tonhaugen.
However, noting uncertainty about how quickly demand for oil and gas would increase, Mr Tonhaugen predicted any recovery would be slow. He said prices would not return to pre-coronavirus levels as quickly as they had fallen. Brent crude sold for around $70/bbl in January.
Rystad reckons some UK North Sea fields will be taken out of production early as a result of the fall in prices this year.
It said nearly 10 per cent of all UK offshore assets have production costs above $25/bbl. This could make decommissioning them a better financial option than extending their lives if low prices persist.
Leading oil and gas entrepreneur says now may be time to invest in North Sea
Efforts by firms to cut costs in response to the downturn that started in 2014 have left little scope for further economies to be made.
“Lackluster exploration results, growing regulatory stringency and a prolonged low oil price environment may lead operators to fulfill their asset retirement obligations in the absence of any lucrative competing investments,” noted Rystad.
Moves to shut down some fields early combined with the fact many others are reaching the ends of their expected lives could result in a huge increase in decommissioning activity in the UK.
North Sea faces 'premature end' as firms slash costs amid oil market mayhem
Rystad said the UK North Sea could account for $14 billion, a third, of the total expected global decommissioning spend of $42bn in the next five years.
It thinks around 80 UK North Sea fileds will cease production in that period.
“Almost 80% of the country’s oil and gas assets have produced more than 75% of their available resources,” noted Rystad.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here