Crude oil production in the North Sea has been declining for years as the mature fields come to the end of their operational life and oil majors begin to concentrate on more profitable, promising developments elsewhere around the world.
Just because these old fields are entering their final years of production does not, however, mean that there is no oil left in the North Sea. In fact Hannon Westwood has estimated that there still remains some 4.88 billion barrels of oil equivalent in recoverable reserves, worth around $500 billion.
These oil reserves exist in various small deposits around the North Sea, that are too small to interest the oil majors, however there are many small operators that are keen to begin extracting.
The problem is that these small operators lack the infrastructure to transport their oil to market, and therefore must use the hubs, pipelines, and onshore facilities owned by the majors, but most of this infrastructure is coming to the end of its working life, and the oil companies that own it do not see any reason to replace it when they are leaving the area.
The Royal Dutch Shell platform Gannett Alpha is one example of ageing infrastructure in the North Sea. (The Guardian)
Related article: Why Deflation will Cause Oil Production to Slow
By 2025 more than half of the infrastructure currently in operation in the North Sea will have been decommissioned. Philip Whittaker, of the Boston Consulting Group, said that whilst some of the “decommissioning has been pushed back but it does need to start happening. We are reaching the stage where some assets need to be retired for integrity reasons.”
Decommissioning an oil platform in the North Sea. (offshorenergytoday.com)
With little incentive for the big oil companies to invest in new infrastructure, there is a race for smaller operators to try and sort deals to use the pipelines and platforms before they are finished. Oonagh Werngren, head of operations at Oil & Gas UK, confirmed that “in certain areas there are quite significant volumes associated with 30-year-old platforms, so we need to accelerate the exploration and development.”
Related article: Oil is the New Gold
Although getting oil majors to actually sit down and agree to terms is proving difficult, leading some small operators to warn the UK government that if they don’t step in to help, the vast amounts of oil that remains in the North Sea, may be left there. As Stephane Foucaud, the managing director of First Energy Capital, explained, the oil majors “want to exit the North Sea, so dealing with small offtake agreements is not a priority.”
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com