United Kingdom Oil & Gas Report Q2 2013 - New Market Research Report

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Boston, MA -- (SBWire) -- 05/22/2013 --The pick-up in drilling activity in the UK's offshore sector will continue on the back of high oil prices and tax reforms that support gas production and development. The clarification of budget rules related to the decommissioning of defunct infrastructure in the North Sea will sustain a trend of smaller independents or newcomers in search of safe, producing assets taking up the mature assets that existing players have decided to offload. This will slow the rate of decline, especially in UK gas production, though it will still be insufficient to prevent a rise in its import requirement owing to a policy focus on gas in the country's energy mix. The embrace of shale gas, however, presents upside potential, though it is not likely to make a significant contribution to total gas output within our 10-year forecast period to 2022.

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The main trends and developments we highlight in the UK oil and gas sector are:

- Data released by the US Energy Information Administration (EIA) show that oil and gas production fell precipitously in 2011 - a 17.1% decrease to 1.16mn barrels per day (b/d) for oil and a 23.1% fall to 43.3bn cubic metres (bcm) for gas.
- Government tax breaks granted in 2012 are paying off as investment returns to the North Sea - the latest major project being Statoil's Mariner heavy oil project. It has also encouraged brownfield investment from Talisman and Shell in mature assets. A rejuvenated UK Continental Shelf (UKCS) is expected to create 40,000-50,000 new jobs, according to energy recruitment firm Oilandgaspeople.com.
- Technical glitches in mature but critical projects such as the Cormorant Alpha platform and the Brent pipeline system are expected to hit output further in 2013 and alongside natural decline, will see the UK's oil output dip below 1mn b/d to 944,700b/d in 2013.
- Although the long-term output trend is a downward one, we forecast that fiscal incentives will see a gentler fall in production as drilling activity picks up; in 2017, we expect output to average at 810,500b/d. By 2022, output could be as low as 744,950b/d based on current rates and volumes of oil discoveries.
- As the European banking crisis continues to loom over Western Europe, we forecast weaker domestic demand for oil: domestic consumption is estimated to have fallen to 1.58mn b/d in 2012. Still, along with an expected (albeit slow) recovery, oil consumption will lift slightly to 1.62mn b/d by 2017, racking up an import bill of US$27.3bn.
- Gas production is also estimated to have fallen to 40.7bn cubic metres (bcm) in 2012, owing to a natural rate of decline and from the unexpected loss caused by stoppages at Total's Elgin gas platform due to a gas leak. As with oil, tax incentives should lead to a deceleration in output declines. Gas output is forecast at 34.6bcm in 2017 and 31.2bcm by 2022.

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