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Oil and Gas Analytical Bulletin May 2014

Oil and Gas Analytical Bulletin May 2014

Wednesday, May 28, 2014

ISBN: 9781784125493

These bulletins provides topical briefing on the oil and gas industry. The May 2014 bulletin focuses on the outlook for the industry over the next five years, covering investment, production, and prices. It also illustrates how different assumptions about the future path of these indicators could impact on the projected tax revenue from the sector.

Executive Summary

This is the third in a series of bulletins summarising recent statistics and analysis of the Scottish oil and gas industry.

Previous bulletins have focussed on Scotland’s share of EU oil and gas production and reserves, projections of future tax revenues, international activity of oil and gas companies, and the value of oil and gas exports. These bulletins are available on the Scottish Government website.

This bulletin focuses on the outlook for the industry over the next five years. Sections 2 to 4 summarise the outlook for investment, production and prices respectively. Section 5 illustrates how different assumptions about the future path of these indicators could impact on the projected tax revenue from the sector. Section 6 then draws on this analysis to demonstrate how Scottish North Sea tax receipts could evolve under different scenarios.

The key results from the bulletin are summarised below:

  • The North Sea has seen very high levels of investment in recent years, with capital spending reaching £14.4 billion in 2013. This has been accompanied by a drop in production, reflecting a long-term downward trend in base production and unplanned stoppages at a number of fields. These factors have put downward pressure on North Sea tax receipts.
  • Industry forecasts suggest that production should start to improve from 2014. The latest Index of Production statistics show that output from oil and gas extraction in February and March 2014 was approximately 3% higher than in the same months last year. Oil and Gas UK’s central projection is for production to increase by 14% between 2013 and 2018. Investment levels are also expected to moderate in the coming years as a number of major projects are completed.
  • A range of scenarios for the outlook of Scottish North Sea tax revenues are presented in the second half of the Bulletin. The forecasts are sensitive to the assumptions used. Based on a range of assumptions about future production, prices and costs, cumulative Scottish North Sea receipts could be as much as £39 billion in the five years to 2018-19.