Among the first victims of OPEC’s battle for market share was supposed to be oil producers in the North Sea. But despite their decades-old facilities and high-costs, they are proving surprisingly resilient to the price slump.
According to estimates by industry consultant Wood Mackenzie Ltd., as projects that were sanctioned before crude’s plunge four years ago start up, crude oil and condensate output is likely to continue rising in the U.K. North Sea until 2018.
Output by the end of the decade will still be roughly equal to the 2015 level even though production dips after that.
The Organization of Petroleum Exporting Countries has allowed prices to plunge to 12-year lows to squeeze higher-cost rivals by pumping without alimits sBottom of Form
ince 2014. The battle is far from over even as the strategy is expected to reduce non-OPEC output by 840,000 barrels a day this year. The unexpected stamina of areas like the North Sea is adding to the global glut and keeping prices lower for longer. In these areas the operators have proved adept at keeping the taps open to keep cash flowing.
“Production has stayed resilient. We saw a record number of dollars invested in the high-oil price environment,” and that is still delivering new production,” said Ian Thom, an Edinburgh-based senior research manager for U.K. upstream at Wood Mackenzie.
Deferring a return to balance in the market, OPEC and the International Energy Agency have said they expect production from some countries to increase. It expects production from outside the group will grow by 200,000 barrels a day next year, raising it from an earlier projection of a drop of 150,000 a day, OPEC, responsible for more than 40 percent of the world’s oil, said on Sept. 12.
Rebounding from a sharp decline this year, the IEA said it estimates supplies outside OPEC will rise by 380,000 barrels a day a day later. The Paris-based agency said that increasing output will delay the rebalancing of the market until the second half of next year, coupled with slowing demand. It predicted a return to equilibrium this year only last month.
“There are pockets of resilience across the world. Some companies were able to bring costs down substantially and this provides some resilience,” IEA’s Executive Director Fatih Birol said in an interview in London.
According to Wood Mackenzie, production of crude and condensate, a type of light oil, will be about 8 percent higher than last year and will top 1 million barrels a day in the U.K. North Sea this year. Before falling to about 956,000 barrels at the end of the decade, output will reach 1.07 million barrels a day in 2017 and 1.11 million the next year.
Some countries found it easier and cheaper to keep the fields running instead of shutting them now and starting again later when oil prices started their decline in the middle of 2014. Russian Energy Ministry data show that production has been running at a post-Soviet high all year in the country. The decline in oil prices have been offset by the plunge in the ruble which has reduced costs.
(Adapted from Bloomberg)