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Last Updated: Thursday, 22 April, 2004, 07:27 GMT 08:27 UK
UK oil flow to become a trickle
By Sandy Murray
BBC News Online Scotland

Buzzard oil platform
Many recent discoveries, such as the Buzzard field, have been made by independent companies
The discovery of oil in the North Sea transformed the economy of many of the communities surrounding it.

But production has peaked, and those who benefited most have now been faced with the challenge of making a new living for themselves.

For the UK's oil industry, it has been transformed by the challenges of North Sea production.

The long-term benefits will largely come from exploiting techniques developed in this harsh environment.

Tony Wood, an economist with the Royal Bank of Scotland who specialises in the oil and gas sector, has watched the North Sea industry change over the years.

"We're around half way through the life of it in volume terms," he said.

"If we assume that North Sea production really got going in the late 70s or early 80s, what we're talking about is another 20 years of gradually declining production.

"From the Scottish point of view, one of the real strengths of the industry has been the service and supply businesses that we've developed on the back of oil production.

"The extent to which that is exporting its activity and developing international markets will help stem the impact of the North Sea's decline on the Scottish economy."

Global supply

But the North Sea industry has been a benefit for the economy of the whole of the UK.

The UK Government will have to manage its decline in a global context.

Mr Wood said: "From a UK economy point of view, there will be a fairly significant decline in the rate of Treasury receipts but also there will be an increasing strategic issue around security of supply and where we import oil and gas from."

The businesses which support North Sea production range from local companies, some of which have become international players on the strength of the UK oil boom, to offshoots of giant multinational corporations.

Alan Booth
Just as people have a midlife crisis, I think the North Sea is at that stage of its life as well
Alan Booth
EnCana UK
Tadg Slattery is Vice-President of KBR Production Services, part of the Halliburton group.

He has described the coming changes in the industry as a chance to find new business.

"It creates opportunity for us contractors," he said.

"There is this whole 'decline atmosphere' about the place I suppose but when the big operators start to divert their resources to concentrate on bigger things - in Central Asia, or the Far East, or West Africa or deep water in the Gulf of Mexico - that means that they leave big openings for us here to come and do the things that we're really good at.

"We can produce ideas for cost savings, for production optimisation, for squeezing more out of assets."

Many of the companies operating in the North Sea believe that this process, of pumping every last drop of recoverable oil, will continue for many years.

New finds

As the larger oil discoveries have given way to the exploitation of more modest fields, the major oil companies have started to move out, replaced by smaller independent businesses.

One of the most significant finds of recent years was the Buzzard oil field, 60 miles (100km) off Aberdeen in the central North Sea.

The major share in this field is owned by EnCana, a leading independent oil and gas company.

Oil workers - Halliburton KBR
Skills developed in the North Sea will be used around the world.

Its UK managing director, Alan Booth, is also president of the United Kingdom Offshore Operators Association (UKOOA).

Mr Booth said: "Just as people have a midlife crisis, I think the North Sea is at that stage of its life as well.

"When people refer to it as mature they often get the wrong connotation that mature means it's ready to die.

"I think there's a general acceptance throughout the industry that we've probably only produced half of what's available to be produced from the North Sea."

But while he agrees with other experts that the UK oil industry can look forward to many years of production, Mr Booth believes there will be a time when it has to be accepted that nothing remains worth taking from the sea bed.

He said: "Everything in the North Sea will effectively be finished, because it is such a rigorous environment.

"It's not that the oil will run out but that the ability to extract the oil economically will not be there.

"Ultimately the price of oil will determine when we actually switch off facilities."

Oil boom ends

The coming period of change will have the greatest impact on the north east of Scotland.

It's very hard to know what the world would have looked like if we didn't have [oil]
Tony Wood
Royal Bank of Scotland
A quiet backwater in economic terms before the oil was discovered, this has become one of the most prosperous parts of the country.

The chief executive of Aberdeen and Grampian Chamber of Commerce, Geoff Runcie, said: "The transition from the impact that we have at the moment, which is hugely positive, to a position where there is little impact - and that may be 30 or 50 years away - you need to plan the diversification of the economy at a very early stage.

"I would say from a north east perspective we have a very robust and well-developed plan."

At the Royal Bank of Scotland, economist Tony Wood said it is almost impossible to paint a picture of how the UK economy would have looked without commercial oil production, and just as hard to guess how it will look when the oil is gone.

He said: "It's very hard to know what the world would have looked like if we didn't have it because the people employed in the industry would have done other things.

"But clearly it's been important as an employer and as a tax generator for the UK Treasury."




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