This paper examines the issue of how the viability of activity in the UKCS may best be maintained in the context of the new world environment. This environment is personified by (1) continued relatively low but volatile oilprices, (2) keen competition among producing countries with OPECs market power considerably reduced, (3) strong, global competition for investment fluids with much of the world including the FSU now attempting to attract private investment, (4) modest oil demand growth, and (5) increasing environmental concerns and associated regulatory pressures. These features will be illustrated.
Activity in the UKCS is likely to continue to take place within this context over the next few years. How can a mature province best adapt to this environment? Considerable opportunities are still available because the actual and potential reserve base is still attractive. To maximise the opportunities appropriate actions are required by all players. Government should attempt to ensure that (1) regulations do not add unnecessarily to costs nor delay projects, (2) taxes do not inhibit projects (3) agreement and relations with other countries (including EU) take into account the needs of the UKCS and (4)R and D in the petroleum sector is fostered. Appropriate Government behaviour can reduce the perceived political risks. Examples where Government initiatives are desirable will be given.
Oil companies and the major supply and contracting companies will continue to have competing calls on their limited budgets. Success in the UKCS will depend upon continued innovations in both technology and management\work practices, particularly directed towards cost reduction. The continued role of CRINE (with the associated technique of partnering in particular) will be discussed. The issue of how innovations and cost reducing techniques developed in the North Sea can be deployed elsewhere will be raised.
The continued viability of activity in the UKCS depends upon the ability of all the actors involved to adapt to the changing international environment and the local market conditions. The international environment determines the competitive position against which the UK industry has to be measured. Of prime importance in this respect is the oil price prospect. This continues to be subject to much uncertainty. On the petroleum demand side the general expectation is that consumption growth for the world as a whole will be at a modest pace over the next decade. Figures of around 1.5% per year are frequently forecast. Within that total it is expected that the main area of growth will be the Far East, especially in those countries which are experiencing rapid industrialisation. Within OECD countries, oil demand is expected to grow at only very modest rates reflecting a combination of continued competition from other fuels, enhanced energy efficiency and constraints imposed by environmental policies. The strength of the environmental measures likely to be imposed is subject to much uncertainty as this depends upon the extent to which conflicting political pressures are translated into policies by Governments in Europe and America.
The uncertainties in the oil market are even more uncertain on the supply side. Non-OPEC production as a whole continues to be more buoyant than was thought likely a few years ago. This reflects a combination of the fruits of past geological success in some countries and the technological progress in the industry which has resulted in new projects becoming more attractive to investors. The consequence has been that instead of falling in recent years as was predicted by many, aggregate non-OPEC production has grown. This is inspite of substantial falls in some countries, especially the FSU and USA. Non-OPEC production may continue to increase in the near future. In the medium-term much depends on whether the large output falls in Russia can be reversed.