Oil and gas production in the U.K. North Sea could fall “briskly” if crude returns to $50 a barrel, leaving more than 300 fields undeveloped, according to a University of Aberdeen study.
The findings highlight the risk to the industry from dwindling investment as oil prices struggle to sustain a recovery. Benchmark Brent crude has hovered near $60 a barrel in recent months, down about 20% from an April peak as the protracted U.S.-China trade war fuels demand concerns.
Of the 415 North Sea fields that are discovered but not yet slated for development, only 81 may proceed if oil falls to $50, according to the authors of the study.
In that event, production in the region “is seen to decline briskly from 2025 onwards and becomes less than 200,000 barrels a day in 2050,” they said. Even in a $70-a-barrel scenario, “substantial numbers of these fields remain undeveloped by 2050.”
Companies have been producing in the U.K. North Sea for more than four decades and the region is home to the Brent field, the origin of the international crude benchmark. The country’s oil output peaked in 1999 at almost 3 million barrels a day, and has since fallen by two-thirds as aging fields run dry, according to BP Plc data.
Investment in new fields has dropped by more than half since 2015 following the crash in prices, the University of Aberdeen study showed, citing data from trade association Oil & Gas U.K. Although North Sea operating costs have also fallen, they remain relatively high compared with other regions.
“Field investment and production over the long term were found to be extremely sensitive to oil and gas price behavior,” the study’s authors said. “The production decline rate at the low price is quite sharp.” Some of the oil market’s biggest forecasting agencies have been scaling back demand estimates in recent months as fears of an economic slowdown overshadow OPEC output cuts.
Some investment banks have also reduced their price outlooks, with ABN Amro NV last week cutting its Brent forecast by $10 to an average of $63 a barrel in 2021 amid consumption concerns and ample supply.