Fund’s analysis suggests industry’s crisis is worse than feared, as IMF claims oil price slump has hit UK «earlier and more intensely» than in other countries
Analysis by the IMF and Rystad Energy showed North Sea oil producers would be among the hardest hit by the slump in prices because huge operating costs Photo: Rex
Britain’s oil industry faces a deep and long-lasting crisis, according to the International Monetary Fund, which said the collapse in oil prices would stifle investment and hit production at a much faster pace than other countries.
Analysis by the IMF and Rystad Energy showed North Sea oil producers would be among the hardest hit by the slump in prices because huge operating costs meant they could not absorb the decline as easily as countries such as Kuwait, Iraq and Saudi Arabia.
«Canada, the North Sea, and the United Kingdom are among the most expensive places to operate oil fields. As a result, the oil price slump will affect production in those locations earlier and more intensely than in other locations,» the IMF said in its World Economic Outlook.
UK oil production costs per barrel are the highest in the world (Source: IMF)
The fund’s oil industry analysis showed that UK producers faced the highest operating costs in the oil producing world, equating to an average of around $40 per barrel. By comparison, operating costs were less than $5 a barrel in Iraq and Kuwait, and about $6 on average in Russia. The figures will deal a further blow to the Scottish nationalists who have claimed North Sea revenues could help sustain an independent Scotland.
Oil prices have fallen from their June high of $115 a barrel to just $58 today. While this has led to a collapse in the use of oil rigs, most notably among US shale oil producers, the IMF said «significant efficiency gains» in the sector would help to limit falls in production.
«Projections from Rystad show that lower oil prices are expected to have a smaller impact on production of shale oil in the United States than on deepwater and oil sand production, especially in Brazil, Canada, and the United Kingdom,» the IMF said.
In the US, the number of oil rigs in use has fallen markedly since September 2014 (Source: IMF)
Chancellor George Osborne extended a £1.3bn lifeline to the North Sea in the Budget by cutting the industry’s tax burden and providing more support for exploration in the UK Continental Shelf (UKCS).
However, the industry faces significant challenges. Earlier this year, Patrick Pouyanné, the chief executive of Total, said investment in North Sea projects «will be diminished» even as oil prices recover. He said Britain faced a «fight against the decline of mature oil fields», which would not be helped by more generous tax breaks.
The OBR said last year that it expects North Sea oil revenues to make almost no contribution to UK growth by 2040 while total receipts will fall much faster than initially expected.
The IMF expects prices to «partially recover» in the coming years, although its analysis suggest prices will remain close to $70 a barrel until at least the end of the decade. «Oil prices will, all else equal, rebound to higher levels— but only gradually,» the IMF said.
Baseline assumptions for the IMF’s average petroleum spot price, which are based on futures prices, suggest average annual prices of $58.10 a barrel in 2015, $65.70 in 2016, and $69.20 in 2017 (Source: IMF)
The IMF still expects the UK to be a net beneficiary of the slump in oil prices, as it described Britain’s expansion as «steady» and «solid».
«In the United Kingdom, lower oil prices and improved financial market conditions are expected to support continued steady growth.» it said.
The Fund left its estimate of UK growth unchanged at 2.7pc for 2015 while growth for 2016 was revised slightly to 2.3pc, from 2.4pc.
It suggested interest rates should remain unchanged until next year, «given currently weak inflation pressures». Inflation stood at just zero in March, and Britain is expected to dip into deflation in the first half of this year.
The IMF also said managing financial stability risks from Britain’s housing and mortgage markets «remained important», adding that building more houses in the UK remained a «priority».
Analysis by the IMF and Rystad Energy showed North Sea oil producers would be among the hardest hit by the slump in prices because huge operating costs Photo: Rex
Britain’s oil industry faces a deep and long-lasting crisis, according to the International Monetary Fund, which said the collapse in oil prices would stifle investment and hit production at a much faster pace than other countries.
Analysis by the IMF and Rystad Energy showed North Sea oil producers would be among the hardest hit by the slump in prices because huge operating costs meant they could not absorb the decline as easily as countries such as Kuwait, Iraq and Saudi Arabia.
«Canada, the North Sea, and the United Kingdom are among the most expensive places to operate oil fields. As a result, the oil price slump will affect production in those locations earlier and more intensely than in other locations,» the IMF said in its World Economic Outlook.
UK oil production costs per barrel are the highest in the world (Source: IMF)
The fund’s oil industry analysis showed that UK producers faced the highest operating costs in the oil producing world, equating to an average of around $40 per barrel. By comparison, operating costs were less than $5 a barrel in Iraq and Kuwait, and about $6 on average in Russia. The figures will deal a further blow to the Scottish nationalists who have claimed North Sea revenues could help sustain an independent Scotland.
Oil prices have fallen from their June high of $115 a barrel to just $58 today. While this has led to a collapse in the use of oil rigs, most notably among US shale oil producers, the IMF said «significant efficiency gains» in the sector would help to limit falls in production.
«Projections from Rystad show that lower oil prices are expected to have a smaller impact on production of shale oil in the United States than on deepwater and oil sand production, especially in Brazil, Canada, and the United Kingdom,» the IMF said.
In the US, the number of oil rigs in use has fallen markedly since September 2014 (Source: IMF)
Chancellor George Osborne extended a £1.3bn lifeline to the North Sea in the Budget by cutting the industry’s tax burden and providing more support for exploration in the UK Continental Shelf (UKCS).
However, the industry faces significant challenges. Earlier this year, Patrick Pouyanné, the chief executive of Total, said investment in North Sea projects «will be diminished» even as oil prices recover. He said Britain faced a «fight against the decline of mature oil fields», which would not be helped by more generous tax breaks.
The OBR said last year that it expects North Sea oil revenues to make almost no contribution to UK growth by 2040 while total receipts will fall much faster than initially expected.
The IMF expects prices to «partially recover» in the coming years, although its analysis suggest prices will remain close to $70 a barrel until at least the end of the decade. «Oil prices will, all else equal, rebound to higher levels— but only gradually,» the IMF said.
Baseline assumptions for the IMF’s average petroleum spot price, which are based on futures prices, suggest average annual prices of $58.10 a barrel in 2015, $65.70 in 2016, and $69.20 in 2017 (Source: IMF)
The IMF still expects the UK to be a net beneficiary of the slump in oil prices, as it described Britain’s expansion as «steady» and «solid».
«In the United Kingdom, lower oil prices and improved financial market conditions are expected to support continued steady growth.» it said.
The Fund left its estimate of UK growth unchanged at 2.7pc for 2015 while growth for 2016 was revised slightly to 2.3pc, from 2.4pc.
It suggested interest rates should remain unchanged until next year, «given currently weak inflation pressures». Inflation stood at just zero in March, and Britain is expected to dip into deflation in the first half of this year.
The IMF also said managing financial stability risks from Britain’s housing and mortgage markets «remained important», adding that building more houses in the UK remained a «priority».
