North Sea oil output fall hits non-Opec growth

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London, Oct 20: Rapidly falling North Sea oil output has acted as a drag on non-OPEC growth this year, and analysts say if other mature fields see a similar slowdown producers may struggle to keep pace with world demand. Non-Opec producers, including Britain, Norway, Russia, Angola and north America, supply most of the world’s oil.

But in 2005 non-OPEC countries only just brought enough new oil onstream to compensate for declining output from mature fields. “Decline rates in non-Opec as a whole are accelerating,” said Paul Horsnell, an analyst at Barclays Capital. “Going forward, calculating that decline rate correctly is more crucial for net growth than calculating the increment in non-Opec oil supplies.” “These things are cumulative. Every one percent of non-Opec output that disappears is 500,000 barrels per day, and over time, it all adds up.”

UK North Sea output decline rates at 8-10% per year are among the highest in the world. The rate is well above the five percent per year decline that analysts had expected after UK production peaked in 1999. UK offshore output in June was the lowest since 1989.

The Paris-based International Energy Agency (IEA) expects UK oil output to fall 200,000 bpd in 2005 to 1.86 million bpd, and another 200,000 bpd in 2006. “UK North Sea decline is near top of the pack,” said PFC analyst Jamal Qureshi. “It’s certainly the largest producing area declining at these kind of rates. We’ve been watching it happen, it is worse than expected every year.” Fellow North Sea producer Norway is also having a bad year. Output is expected to fall around 180,000 bpd this year.

Oil from non-Opec producers accounts for around 50 million bpd out of total production of around 80 million bpd. A fall in supply puts the onus on Opec to produce more crude and hands a larger market share to the cartel. It also means Opec uses up its spare supply cushion more quickly, tightening world oil fundamentals and spooking oil markets as they fear producers are less likely to be able to compensate for any large scale production outage. OPEC has stepped into the gap this year.