Is This The End For North Sea Oil?

Plummeting prices of crude oil could see the end of North Sea oil drilling within ten years, experts warn. Professor Paul Stevens, from International Affairs think tank Chatham House, said: “If oil is not produced within the next five to 10 years, it is never going to be produced. So the ­prospects for the North Sea are not looking particularly good.” He added: “The worst case ­scenario is that the North Sea oil industry closes down. “We are not talking about in the next year or so, but we are talking about a period of the next five to 10 years.”

What has caused the problem?

Several factors have contributed to the possibility of an end to drilling in the North Sea. Costs to extract the oil have risen, but the price of oil has stagnated at around $50 a barrel. There is now a real possibility that oil companies could face bankruptcy. Many companies have already made job cuts in an attempt to keep platforms and rigs operational.

The oil platforms in the North Sea are now reaching the end of their working life, but with crude oil selling at such as low price, companies are reluctant to improve their infrastructure.

Decommissioning oil platforms

One of the biggest oil companies, Royal Dutch Shell, is already going ahead with plans to decommission two of the platforms in the Brent field. Four platforms - Alpha, Bravo, Charlie and Delta - have been in operation since 1976 and generated over £20bn of tax revenue. Only Charlie is still in operation.

What will happen to the oil left in the North Sea?

There are thought to be around 16bn barrels of oil left in the North Sea, but these are typically in smaller finds. Companies will, therefore, have to invest more money in order to extract it.

Is it cost effective to leave the oil?

Decommissioning of oil platforms in the North Sea is thought to be worth over £40 billion. There will be multi-million pound contracts available to not only remove old platforms and pipelines, but to plug up wells that are now dry. This could possibly outweigh any profits made by extracting the oil. However, so far, most decommissioning projects have been awarded to Norwegian, Danish and English companies.

Should the Government step in?

Some 300,000 jobs in the UK are reliant on the oil and gas industry. Many experts, therefore, believe that the government should help, either in the forms of tax subsidies or guarantees. Professor Nick Butler, a former BP and government adviser, said: “I would personally like to see the Government providing ­guarantees to North Sea operators to keep the fields operational for as long as possible.”

In Dec 2014, the UK government introduced tax breaks of £450m to help North Sea oil companies during a period of increasing costs, plummeting prices and declining outputs. However, some industry experts are warning that the government's actions may prove insufficient in the face of such uncertainty within the industry. You can read more about this topic in: Why Do North Sea Companies Need £450 million Tax Break?