LONDON – North Sea oil production has sunk more than 260,000 barrels per day from last year, aggravating a shortage of high-quality crude that has stoked record prices.
The decline is concentrated in the British sector of the North Sea, where industry analysts Wood Mackenzie said average production for the first half of 2004 was 1.9 million barrels per day, down around 12 percent from the level of 2.166 million a year ago.
Output from Norway, the world’s third-largest exporter, for the first six months of the year was roughly stable at around 2.9 million barrels per day. Since then it came under strain because heavy summer maintenance and a strike are costing some 200,000 barrels per day of output, officials have said.
Easy to refine
The loss is keenly felt on the world oil markets because North Sea crude is the kind of easy-to-refine light, sweet crude that is in much shorter supply than heavy, high-sulfur grades.
“Because of the tightness of the light, sweet crudes versus the heavy sour, even if you lose one barrel of light, sweet, it has an impact on the two benchmarks,” analyst Frederic Lasserre of SG Commodities said.
“We’re using light, sweet crudes as worldwide benchmarks in current circumstances, but it’s more reflecting the tightness of light sweet than the global situation,” he said.
North Sea Brent crude futures climbed to an all-time high of more than $49 this week, while U.S. light, sweet crude futures hit $53.
Figures released so far for the second half of 2004 show production is continuing to decline.
Crude production from the British sector of the North Sea fell to an average of 1.76 million barrels per day in July, a decline of 9.9 percent compared with the same time last year, and a fall of 0.8 percent on the month, according to figures this week from the Royal Bank of Scotland.
The Norwegian North Sea is less mature than the British sector, and the nation’s budget forecasts a rise in production next year to 3.3 million barrels per day from the annual daily average of 3.2 million barrels per day anticipated for 2004.
But exports from Norway fell to a preliminary 2.56 million barrels per day on average in August from 2.9 million barrels per day in July because of maintenance shutdowns, the Norwegian Petroleum Directorate said.
At the same time, a three-month strike by Norwegian oil rig workers is set to expand today by closing another North Sea field and increasing the output hit to 55,000 barrels per day.
Strike stops drilling
The strike has also halted drilling, raising the total impact to an estimated 200,000 barrels per day, an employers’ representative said.
Denmark also has a limited amount of North Sea oil production, which is becoming smaller.
Danish officials said this week that the country’s oil output fell 9.5 percent year-on-year in August to a daily average of 336,028 barrels.
While sweet grades command a premium, heavy, sour grades have fallen to record low levels against the sweet marker crudes as increased production from the Organization of the Petroleum Exporting Countries has swamped the physical sour market.
Logically, the profits of high oil prices should be invested in predominantly light, sweet regions like the North Sea, but analysts say any increase in investment will take place first in younger, more profitable areas.
“The industry’s physical capital will move to the location where the returns are highest, which means any upturn in the relatively high cost North Sea will lag other parts of the industry,” said Tony Wood, senior economist at the Royal Bank of Scotland.
Rhodri Thomas, analyst at Wood Mackenzie, also predicted high prices would have only a limited impact in the North Sea.
“There is investment going on, but it is required to keep up production levels. It is hard work to get oil out of old fields,” Thomas said.
Despite depressing statistics, the industry cautions against undue pessimism and has said that summer production figures were particularly low because of heavy maintenance.