Raymond James "Energy Stat of the Week"

Post Reply
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Raymond James "Energy Stat of the Week"

Post by dan_s »

From RJ "Energy Stat of the Week" dated 4-26-2010

Who do you think has been worse for their country's oil industry: Tony Blair or Hugo Chavez? Come to think of it, it is kind of an unfair comparison - unfair to Chavez! We'll let political historians judge the Labour era's legacy for the U.K. overall, but as far as the oil industry goes, it's a no-brainer. Over the past decade-plus, the U.K. has experienced an oil production meltdown of horrendous proportions - yes, even worse than Venezuela's. When Tony Blair first became prime minister in 1997, the U.K. produced 2.7 MMbpd, of which nearly 1 MMbpd was exported. By 2009, the U.K. was producing 1.5 MMbpd - a 46% decline over a 12-year period, an average of 5% per year. As a result, in 2004 the U.K. recorded its first petroleum trade deficit in 13 years, and in 2006 became a net importer on a sustained basis. In 2009, the U.K. imported roughly 0.2 MMbpd, with the import requirement likely to double by 2012. While the U.K. remains one of the most self-sufficient industrialized countries when it comes to oil supply, its status as a textbook mature oil producer means that production is heading in only one direction: Down.

Of course, Blair and his successor Gordon Brown are not solely responsible for the fact that U.K. oil production fell in half during their term of office. Most of the decline is a function of geology rather than policy (in contrast to Venezuela). This is why the fact that the Labour Party will likely be ousted on May 6 is mostly irrelevant for the oil market. If Conservatives lead the next government, they may take some modest steps to incentivize investment and thus slow down declines, but don't expect much near-term impact. Although Norway's declines haven't been quite as severe as the U.K.'s, they, too, illustrate that the North Sea has peaked - for good.
Dan Steffens
Energy Prospectus Group
Post Reply