The North Sea was thought to be the prime example of how the oil price slump hurt high-cost corners of the energy industry. Yet its crude output is defying the doomsayers.

After an increase last year, the region’s production will rise again in 2015 to almost 3 million barrels a day, the first consecutive annual gains in 15 years, the International Energy Agency said Wednesday. The extra supply is entering a global market already “awash” with competing grades of oil, it said.

The impact will be felt across the world because the North Sea -- home of the Brent benchmark -- plays an outsized role in the oil market. Even small gains in the region’s output can move prices significantly, according to consultant Energy Aspects Ltd. Production gains resulted in an “armada” of unsold North Sea cargoes in June and July, the IEA said.

“The North Sea has stemmed the decline seen over the past decade,” Toril Bosoni, an oil-supply analyst at the IEA in Paris, said by phone Wednesday. “Investment in the North Sea clearly picked up after four years of triple-digit oil prices. Several new fields have started up since last year and we have seen fewer outages.”

Crude slid back into a bear market last month amid an enduring supply glut. Brent has averaged less than $50 a barrel in August, half the level of a year ago, and traded at $50.26 at 9:10 a.m. Thursday local time on the London-based ICE Futures Europe exchange.

New Fields

Even as prices dropped, daily North Sea production climbed by 35,000 barrels in 2014 and will gain another 65,000 this year, according to the IEA. Those would be the first consecutive gains since 1999 and 2000, bucking a steady decline from a peak of 6.36 million barrels in 2000 as aging fields yield less crude and the industry deals with higher costs.

The increase in the region -- which includes fields in waters off the U.K., Norway, the Netherlands, Denmark and Germany -- comes partly from new resources such as BP Plc’s Kinnoull field, Statoil ASA’s Gullfaks South project and Golden Eagle, operated by Cnooc Ltd.’s Nexen unit, according to the IEA.

Paradoxically, the price slump is another reason why production has risen. Companies responded to the challenge of lower prices by improving the performance of existing assets, according to Oil & Gas U.K., an industry lobby group.

Lighter Maintenance

There have been fewer shutdowns for maintenance, the IEA said. Forties, the U.K.’s largest crude stream -- consisting of oil from about 80 fields -- hasn’t closed for repairs this year compared with a 14-day halt in 2014. Buzzard, the nation’s largest field, was offline for most of August last year, while work for 2015 has been postponed by Nexen until October.

BP has improved the operational time of its U.K. North Sea fields to 82 percent from 75 percent in 2012, and made even bigger improvements on the Norwegian side, Chief Executive Officer Bob Dudley said last month. The region is “responding very, very quickly” to the challenges of the current market, he said.

Combined daily shipments of Brent, Forties, Oseberg and Ekofisk crudes are scheduled to average about 900,000 barrels from June to September compared with 810,000 in the same period of 2014, according to data compiled by Bloomberg. Exports of the four grades, used to set the price of benchmark Dated Brent, will be the highest next month since 2013.

Long-Term Downtrend

This is probably only a temporary reversal of the long-term downtrend for the North Sea. Resources that were first tapped in the 1960s are depleted and it is one of the world’s most expensive areas to operate. Decline rates will accelerate again and output will fall by 150,000 barrels a day next year, the IEA said.

BP, Royal Dutch Shell Plc and Total SA have cut staff, curbed investment or begun to sell assets in the region in response to the slump. About 15,000 jobs could disappear this year, Ian Wood, former chairman of oil services company John Wood Group Plc, warned in February.

For now there’s a “bumper” crop of North Sea cargoes, with output in June 300,000 barrels a day higher than a year earlier, the IEA said.

The region’s benchmark crudes dropped to the lowest level in more than six years in June, with as many as seven tankers loaded with unsold crude floating in the North Sea. Forties cargoes for August trade at a discount to Dated Brent amid a lack of demand from Asian buyers.

“Rising North Sea output has added further downward pressure on the Brent benchmark,” Amrita Sen, chief oil analyst at London-based Energy Aspects said by e-mail. “North Sea output is ultimately the price setter” for international oil markets, she said.

Source: www.bloomberg.com

Please leave comments and feedback below