The accelerating cost of producing oil and gas from new frontiers is hindering the development of vital reserves west of Shetland, one of the world’s top oil barons claims.
Christophe de Margerie, the chief executive of Total, France’s largest company, has also questioned whether it is possible to raise global oil output from today’s 85 million barrels per day to 100 million barrels per day, given the cost and logistical challenge. Addressing the Scottish Oil Clubs on Friday night, Mr de Margerie said that he had warned Gordon Brown, the Chancellor, that the development of high-pressure and high-temperature oil and gasfields in the North Sea was in doubt without tax incentives.
He said: “These fields are extremely difficult to produce. The cost of developing fields is so high that, given existing gas prices, these new fields are marginal.”
The recent and sudden collapse in the UK wholesale gas price has created a consumer price war between gas retailers. This has been welcomed by householders hit by rising bills but is forcing North Sea gas producers to question the economics of future developments, putting in jeopardy the supply of gas in the future.
Total is considering Laggan, a large gas discovery in Britain’s Atlantic margin where a government and industry task force is looking at ways of commercialising a clutch of oil and gasfields in the region west of the Shetland Islands. Some of the discoveries date back 20 or 30 years but the water depth and hostile environment have prevented development. Costs for the joint development of pipelines, wells and sub-sea installations have been estimated at £4 billion but the difficulty of building complex offshore facilities and the soaring cost of engineering and materials is causing the cost to escalate further.
Within the past three to four months, the UK wholesale gas price has fallen 70 per cent, mainly because of the arrival of extra supplies from Norway through a new pipeline and the warm winter weather.
Analysts at Merrill Lynch, the investment bank, said: “UK natural gas is now one of the cheapest hydrocarbons on the planet.” Merrill also forecast that the low cost of UK gas, about $3 per million BTU compared with almost $8 per million BTU in America, would cause shipments of liquefied gas destined for Britain to be redirected to US ports.
Mr de Margerie said that much higher prices were necessary for new gas to be brought on stream. He said that the benchmark oil price for developments in difficult locations is no longer $30 per barrel but $50 per barrel, not far from the current oil price of just over $60. Mr de Margerie repeated his scepticism about International Energy Agency (IEA) predictions of oil output of 120 million barrels per day by 2030. “There is no chance,” he said.
Further warnings about the impact of rising costs on the oil and gas industry came last week from the Centre for Global Energy Studies (CGES), which revealed that nonOpec oil production last year rose by only 450,000 barrels per day, a fraction of the 1.5 million bpd predicted by forecasters.
“The oil industry is finding it harder and harder to expand upstream capacity,” the CGES writes in its Global Oil Report. “Development costs are up sharply, essential equipment and skilled labour are in short supply and governments want a bigger share of the proceeds. As a result, projects take longer to complete and output is growing more slowly than predicted.”
Christophe de Margerie, the chief executive of Total, France’s largest company, has also questioned whether it is possible to raise global oil output from today’s 85 million barrels per day to 100 million barrels per day, given the cost and logistical challenge. Addressing the Scottish Oil Clubs on Friday night, Mr de Margerie said that he had warned Gordon Brown, the Chancellor, that the development of high-pressure and high-temperature oil and gasfields in the North Sea was in doubt without tax incentives.
He said: “These fields are extremely difficult to produce. The cost of developing fields is so high that, given existing gas prices, these new fields are marginal.”
The recent and sudden collapse in the UK wholesale gas price has created a consumer price war between gas retailers. This has been welcomed by householders hit by rising bills but is forcing North Sea gas producers to question the economics of future developments, putting in jeopardy the supply of gas in the future.
Total is considering Laggan, a large gas discovery in Britain’s Atlantic margin where a government and industry task force is looking at ways of commercialising a clutch of oil and gasfields in the region west of the Shetland Islands. Some of the discoveries date back 20 or 30 years but the water depth and hostile environment have prevented development. Costs for the joint development of pipelines, wells and sub-sea installations have been estimated at £4 billion but the difficulty of building complex offshore facilities and the soaring cost of engineering and materials is causing the cost to escalate further.
Within the past three to four months, the UK wholesale gas price has fallen 70 per cent, mainly because of the arrival of extra supplies from Norway through a new pipeline and the warm winter weather.
Analysts at Merrill Lynch, the investment bank, said: “UK natural gas is now one of the cheapest hydrocarbons on the planet.” Merrill also forecast that the low cost of UK gas, about $3 per million BTU compared with almost $8 per million BTU in America, would cause shipments of liquefied gas destined for Britain to be redirected to US ports.
Mr de Margerie said that much higher prices were necessary for new gas to be brought on stream. He said that the benchmark oil price for developments in difficult locations is no longer $30 per barrel but $50 per barrel, not far from the current oil price of just over $60. Mr de Margerie repeated his scepticism about International Energy Agency (IEA) predictions of oil output of 120 million barrels per day by 2030. “There is no chance,” he said.
Further warnings about the impact of rising costs on the oil and gas industry came last week from the Centre for Global Energy Studies (CGES), which revealed that nonOpec oil production last year rose by only 450,000 barrels per day, a fraction of the 1.5 million bpd predicted by forecasters.
“The oil industry is finding it harder and harder to expand upstream capacity,” the CGES writes in its Global Oil Report. “Development costs are up sharply, essential equipment and skilled labour are in short supply and governments want a bigger share of the proceeds. As a result, projects take longer to complete and output is growing more slowly than predicted.”
Source: The Times
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