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Transition deal critical for UK oil and gas sector as recovery could take years
Oil and Gas UK (OGUK) has warned that it could take up to three years to restart many of the UK’s oil and gas projects lost due to the impact of the coronavirus pandemic and commodity price downturn. The warning comes in its Autumn Snapshot, which provides a business outlook for 3Q2020.
The report finds that low sentiment in the outlook of companies continues into 2021, reflecting high levels of uncertainty in the market and reinforcing challenges brought on by COVID-19 which are likely to persist. However, despite the operational difficulties being faced, the industry continues to safely deliver secure and affordable energy, with production levels having remained relatively strong throughout the year.
OGUK’s report reinforces that a North Sea transition deal for this sector is ‘essential’ in meeting the need for secure, affordable energy to be produced with fewer emissions and to position the UK as a leader in developing low carbon solutions.
Other key report findings include:
- Brent crude averaged just under $41/b across the first 10 months of 2020. This is $23/b less than the 2019 average and prices at the end of October were at a four-month low ($37/b). Market expectations are that price will take time to recover.
- The average day ahead National Balancing Point (NBP) gas prices in the first 10 months of 2020 was 21.61 p/therm, 38% lower than the average for the same period in 2019.
- UK gas demand fell by 16% in 2Q2020 compared with the same period in 2019.
- Production has remained relatively strong. However, there has been a slight reduction of 2.5% so far this year and is around 3% lower than the 2019 full year daily average. This could be expected to recover in 4Q2020 to end closer in line with 2019 levels.
- A total of 54 wells were spudded in the first 10 months of 2020, meaning the year is now almost certain to see the lowest total levels of drilling activity since the early 1970s.
- Only six exploration wells have been spudded so far and it is possible that there will be no further exploration drilling this year.