Britain became a net importer of oil in June for the first time in 11 years, official data showed on Tuesday.
News of the shift came as world crude oil prices touched record highs this week of $41.70 for benchmark Brent crude and $45.04 a barrel for West Texas Intermediate. The US government on Tuesday raised its central price forecast for US oil this quarter by $4 a barrel to $41 a barrel and predicted prices close to $40 a barrel next winter and in 2005.
The UK’s oil imports were at their highest-ever level in the second quarter, according to data from the Office of National Statistics, a government agency. Meanwhile, oil production peaked in 1999 at 2.8m b/d, and has since been falling as the North Sea’s reserves have been depleted. Wood Mackenzie estimates UK oil output at 2.2m b/d, and some forecasters see production declining to about 2m b/d next year.
Rhodri Thomas, an energy analysts with Wood Mackenzie, said although the June production figures may be slightly lower than normal because of seasonal maintenance on oil rigs in the North Sea, the trend is steadily down. “This is no blip, production rates are in decline,” he said. As North Sea output falls, the monthly statistics will more frequently show UK imports exceeding exports until, some time after 2007, it is expected to emerge as a net importer of oil for the year as a whole.
Since Britain established itself as an oil exporter in 1981, revenues from the North Sea have helped strengthen the country’s current account. At their peak, oil-export revenues accounted for more than 20 per cent of total trade goods exports in the early 1980s, according to research from ING Financial Markets. In June, oil exports accounted for less than 8 per cent of UK goods exports.
Despite importing greater volumes of oil than it exported, the UK managed to scrape a net surplus of £22m from oil, because North Sea crude is of a high enough quality to command a premium. But this was the lowest since August 1991; down from £206m in May, and a fraction of the record £1.5bn received in May 1985. The drop in oil-export revenues contributed to the widening of the UK’s current account deficit for the month to £4.97bn from £4.83bn in May.
Paul Dales, UK economist at Capital Economics, described the figures as “quite worrying”. “We would expect that our oil balance would be soaring at this point. If the balance turns negative then we would expect oil price rises to have a negative effect on UK plc, rather than the beneficial effect it has had in the past,” Mr Dales said.
Even if today’s high prices stimulate more production from marginal fields, the oil industry expects overall North Sea output to continue falling. With Britons using about 1.8m b/d of oil since 1991, that will lead to an increasing reliance on imports.
James Knightley at ING Financial Markets said : “North Sea reserves are being run down and it’s difficult to see production increase in a meaningful way unless they find new fields… The risk is that [the trade balance] will increase unless we see a correction in consumer spending.” In response to declining oil output, the government has sought to attract oil companies by cutting rental fees on licences. Britain has also begun work on an import infrastructure to prepare for the looming structural shift in the energy industry. As the UK is expected to become a net gas importer as early as next year, it is building liquefied natural gas import terminals.
The UK also intends to increase renewable share of power generation to 20 per cent by 2020.
Additional reporting by Javier Blas in London
Published: August 10 2004 21:11
Last updated: August 10 2004 21:11