Output from the North Sea fell for the fifth month in a row in July, despite record oil prices, in a development that could increase concerns about the UK's growing reliance on imports from potentially volatile areas.
The latest Oil and Gas Index from Royal Bank of Scotland showed total production of oil and gas averaged 2,088,083 barrels oil equivalent daily. This was down 10.3% on June and 17.9% on July 2006.
The decline occurred in a month when operators traditionally take advantage of relatively good weather to complete maintenance work.
Production of gas was badly disrupted after the 251-mile central area transmission pipeline was shut down after being damaged by a ship's anchor off Teesside on July 1. This brings in 20% of the UK's gas from the North Sea.
Gas production fell 15% in the month to 5.026 billion cubic feet daily, down 20.7% on the year.
Oil production averaged 1,203,164 barrels daily, down 6.5% on the month and 15.7% on the year.
However, the fact that total production has been well down on both a monthly and annual basis in every month this year since March could trigger alarm bells about the state of the province.
With many fields at the end of their lives or well past their best, oil and gas firms need to keep bringing developments onstream to maintain overall production levels.
New technologies can help firms boost output.
The decline suggests firms have not been able or inclined to bring on enough new production to compensate, although oil prices have been trading around record levels. Royal Bank said Brent crude averaged $76.98 per barrel in July, up $5.74 per barrel in the month and $3.30 per barrel in the year. Critics of the tax increases introduced by the UK Government argue these have encouraged oil and gas majors to shift investment overseas.
Mike Tholen, economics and commercial director of Oil & Gas UK, the industry lobby group, said: "The appropriate fiscal and regulatory regime for the maturing UK continental shelf must be in place if the basin is to continue attracting investment and recovery of the UK's oil and gas reserves is to be maximised."
However, he highlighted official figures showing the fall in output in the last 12 months may not have been as dramatic as data published by Royal Bank recently indicated.
"In the year to July 2007, data from the Department for Business, Enterprise and Regulatory Reform show a 7% decline in oil and gas production compared to the preceding 12 months, comprising a fall of 4% in oil and 11% in gas production," said Tholen.
"Investment to bring new developments into production is being sustained at around £5bn a year and 14 new fields came on stream in the first half of 2007. Overall, the annual rate of decline in oil and gas production seen throughout 2005 and 2006 is being stemmed."
A spokesman for the Scottish Government said ministers welcomed the industry's analysis that the rate of decline in oil and gas production was being reduced.
A surge of investment in North Sea-focused firms by financiers suggests there is still plenty of enthusiasm for the province, where activity may be being hampered by fierce competition for exploration and production kit.
Last month, analysis by consultancy Hannon Westwood showed that activity levels surged in the North Sea in the last two years as growing numbers of firms acquired acreage.
Activity was constrained by a shortage of drilling rigs, forcing firms to wait years before drilling wells.
Fierce competition for production services and related equipment has pushed up prices to record levels and also resulted in delays in projects.
Thorsten Fischer, economist at Royal Bank, said while oil prices would remain volatile due to an unchanged geopolitical landscape, prices should moderate as delayed projects came onstream around the world.
Producing countries should expand production in response to high prices. These should encourage users to increase efficiency.
Strong economic growth in Asia will underpin demand.
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