The North Sea can survive the ongoing storm in the oil and gas industry in the short-term, principal analyst at Wood Mackenzie Neivan Boroujerdi said on Monday.
The oil and gas hub offshore the UK and Norway has weathered several storms in its 50-year existence, but the events in the past few weeks mean the sector is entering uncharted waters. Its flagship Brent crude has reached its lowest level since 2003.
“Cost reductions achieved during the last downturn mean 95% of onstream production is ‘in the money’ at $30 a barrel,” he said. “But close to a quarter of fields will run at a loss in this price environment.”
On Monday, Brent crude oil price was hovering around $25 a barrel, Kallanish Energy reports.
The major concern for the region, however, is not volumes. “Early shut-ins would accelerate $20 billion in decommissioning spend,” Boroujerdi said, adding that to ensure sustainability, operators must reduce expenditure.
In the long-term, operators will be required to invest more, while reducing unit costs. The analyst estimates that this year most final investment decisions have been taken off the table due to current prices. Over 65% of development spend could be wiped out over the next five years, he added.
“Annual investment in the UK could fall below $1 billion as early as 2024. The threat of stranded assets is real – we estimate nearly 6 billion barrels of economically viable resources could be left in the ground, not to mention a further 11 billion of contingent resources,” said Boroujerdi.
This post appeared first on Kallanish Energy News.