Could Lower North Sea Production Estimates Mean Higher Brent Crude Prices?

Michael Teague |

Oil & Gas UK, a trade organization that represents the UK’s offshore energy industry, today lowered its forecast for daily production of North Sea crude and gas for the remainder of 2013 to a range of 1.2 million to 1.4 million barrels of oil equivalent.

The new guidance is slightly lower than the organization’s March forecast of between 1.45 and 1.5 million barrels, and is being at least partially blamed on the 2010 BP (BP) disaster in the Gulf of Mexico, which has forced offshore producers to spend significantly more on maintenance, repairs, and safety.

Indeed, output from the North Sea for 2011 and 2012 has been down 19 and 15 percent respectively. It must be noted, however, that production from the region has been down every year since it peaked in 1999. Drillers in the North Sea have had to search for reserves in deeper and more remote locations in recent years in an attempt to find new sources of oil and gas, as traditional sources have been depleted.

A report by Bloomberg highlighted the economic consequences, noting that since the UK emerged from recession in 2009, the drop in output has resulted in reduced economic growth for half of the ensuing 16 fiscal quarters.

But Oil & Gas UK also reduced longer term estimates, saying that 2014 output would be similar to that of the current year, and won’t exceed 2 million barrels per day until the end of the decade, compared to a March prediction that this target would be met by 2017. Despite record investment in repairs and upgrades, production efficiency is suspected to have fallen drastically, over 50 percent last year, after an 80 percent decline the prior year.

The news could also signal that higher Brent crude prices in the near future. Brent is one of the most important benchmarks for global oil prices, and is constituted of a basket of at least four different varieties of crude that are extracted from deep underneath the North Sea bed.

[Image: A drilling platform in the North Sea, courtesy of Flickr Creative Commons]

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