Very good news from oil giant Centrica who have decided to drill a new output well in their Chesnut field, 125 miles to the north-east of Aberdeen. This will safeguard 70 jobs and is expected to treble output from the field to 10 000 barrels per day. I can only guess this is a response the massive increase in demand for heavy-grade North Sea oil from Asia referred to in my previous piece and which has seen 16 million barrels flowing there in April 2017 alone. Demand is already beginning to outstrip supply and some pundits are predicting a massive shortage this year pushing prices up to £70 per barrel.
According to Goldman Sachs, in Energy Voice, the market is ‘rebalancing rapidly’ and ‘demand will significantly exceed production’, according to the IEA’s Head of Oil Industry and Markets, Neil Atkinson. US stockpiles fell by the 5.2 million barrels in one week. So much for the risk to prices posed by shale. The global supply deficit is predicted to be as wide as 2 billion barrels per day by July.
Last week, ‘data and analytics firm’, McKinsey predicted that oil prices will rebalance at $60 to $70 per barrel. This is well above the $50 per barrel current optimum for viability which itself may be higher than that required for new, smaller, technologically smarter companies
Chestnut started production in 2008 and has produced 20 million barrels despite an initial prediction of only 7 million so perhaps we can expect more this time too?
Interestingly, one of the factors encouraging this is the exchange rate which means if you extract oil with costs in sterling then sell in dollars you get an extra cost benefit.
The Oil and Gas Authority (OGA) operations director Gunther Newcombe is quoted in Energy Voice as saying:
‘The potential production from this incremental Chestnut field investment demonstrates the value of focused late-life management. This investment is a great example of the OGA and industry’s shared objective of delivering maximised economic recovery for the UK.’
Here’s more evidence that the North Sea is far from finished though let’s hope we can substitute the word ‘Scotland’ for ‘UK’ in that quote, before too long.