A new study from the University of Aberdeen has indicated that if low oil prices persist, as much as a third of the remaining recoverable reserves of gas and oil in the North Sea may become simply uneconomical to extract.
The North Sea oil industry has recently adapted oil prices around $60, but a worldwide oversupply problem that has been exacerbated by the coronavirus pandemic has seen prices drop much lower. At the time of writing, Brent crude was trading at around $36 per barrel.
Economy professor Alex Kemp modelled how oil prices of $25, $30, and $45, combined with equivalent gas prices, would affect the North Sea oil industry. At the highest price level, some 28% of the oil and gas reserves could become uneconomical, with this increasing to 35% for the lower $25 price.
Kemp, together with report co-author Linda Stephen, note that they used costs from before the coronavirus crisis, pointing out that these may increase once social distancing measures are incorporated into operations. They did indicate a solution, however:
“The future of the UKCS (UK Continental Shelf) at the oil and gas prices employed in this study depends critically on technological innovations which can significantly enhance productivity.”
The North Sea oil sector has adapted to low oil prices before, and there still seems to be a willingness for oil companies to invest there. For example, Shell, which also makes lubricants like agricultural oil, recently said it would continue to direct capital toward the North Sea.