The annual economic report underlines the contribution that the industry makes to the economy as a source of primary energy supply, jobs, investment, technology and tax revenues.
Malcolm Webb, Oil & Gas UK’s chief executive, said: ‘As the economy seeks to accelerate out of recession and refocus on manufacturing and technology, the oil and gas industry should be recognised as the important engine for growth that it is.
‘Even after more than 40 years of production, the industry has the potential for a great future, both in the continued development of the still substantial remaining offshore oil and gas resource and in the commercial activities of its supply chain.’
According to Oil & Gas UK, domestic oil and gas production in 2009 was 2.4 million barrels of oil equivalent (boe) per day, or 900 million boe over the year. While this represented a 10 per cent production fall on 2008, it was influenced by a nine per cent reduction in UK gas demand.
Despite this, the UK still remains the 15th largest gas producer and 19th largest oil producer in the world. This year, production is expected to fall to around 2.3 million boe per day, declining at a rate of five per cent, provided investment is sustained across the UK Continental Shelf (UKCS).
While 39.5 billion boe have so far been recovered from the UKCS, between 15 billion and 24 billion boe still remain. Of these 24 billion boe, current investment plans can deliver 5.25 billion boe from existing fields and ongoing investment and new projects account for another 5.9 billion boe.
Mike Tholen, Oil & Gas UK’s economics director and author of the report, said: ‘Contrary to the general perception that reserves are dwindling fast, the oil and gas produced from beneath our seabed still meets the vast majority of this country’s primary energy needs over the year: 94 per cent of our oil demand and 68 per cent of our gas demand. Importantly, with sustained investment, encouraged by the right business environment, we will have enough oil and gas still to satisfy half of the UK’s needs in 2020.’
The report states that investor confidence has been restored by the predictable economic environment that currently prevails. Fiscal instability and cost inflation hit investment between 2006 and 2009, with capital injections falling from £6bn to £4.7bn at the same time as oil prices were rising.
However, with the prospect of improving economic conditions, capital investment is expected to increase to between £5bn and £6bn this year and possibly even further in 2011.
‘The industry has managed to cut its operating costs by six per cent in the last year to £6.6bn, with unit operating costs falling to $12 per barrel,’ said Tholen. ‘Also, we have seen governments match fiscal stability with a willingness to tailor the regime to attract new investment, so investors have a more certain backdrop against which to make decisions.
‘This is important because we know that currently companies are considering developments that could lead to £60bn of investment in new production over the next decade. In this year alone, we could see £16bn committed to new projects.’