Sunday, 11 June 2017

North Sea OIl - the eternal resilience of capitalism.

The Telegraph, 14 April 2015:

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... 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.

CNBC, 16 May 2017:

North Sea oil output is expected to jump by a net 400,000 barrels per day (bpd) or about a fifth in the next two years, defying gloomy forecasts for the oldest deepwater basin that produces the world's benchmark crude price... The region is expected to report its third annual production rise in a row in 2017, reversing years of sliding output...

"The drop in the oil price forced everyone to focus even more than they were on (production) uptime and operating efficiencies which have risen dramatically over the last two years," Premier Chief Executive Tony Durrant told Reuters, "We've been at over 90 percent operating efficiency and a lot of the other players are very high as well. If you roll back to 2012-2013, then the North Sea had a shocking record of about 65 percent," he said.

Mark Thomas, BP's regional president for the North Sea, said in September that BP's cost of production had fallen to about $16 or $17 a barrel from above $30 in 2014.

For sure, there is a lot more to this than meets the eye and I have quoted selectively, but you get the general idea.


Lola said...

Woo hoo! IMF bureaucrats 0. Capitalism 1

DBC Reed said...

I cannot see that it is very clever to shut down production for a while, putting thousands of productive people out of work and sucking effectual demand out of the economy then restart when prices pick up.
The whole endeavour of people like Keynes was to maintain production and demand consistently. The modern economic consensus that has massively repressed the economy, and I mean repressed, is clearly so much better than the mixed economy of the 1950's with full employment, nationalised industries, massive collective bargaining, resale price maintenance, you never had it so good speeches.

Graeme said...

DBCR have you tried explaining your reasoning to the Sheik of Saudi Arabia? And, by the way, how many Spotify tracks did you have on your ipod in 1955? How much was a phone call to Australia?

Lola said...

DBCR. Followed by predictable bankruptcy and failure. And Keynes got it wrong about demand driving economies.

Lola said...

DBCR. And the inflation. Rampant inflation.

Striebs said...

One cannot just shut an oil well in and expect it to return to it's previous performance when it is restarted .

All sorts of problems can be encountered requiring work overs with no guarantee of success .

I am not aware that KSA has shut any wells in for any length of time , they may just have closed the chokes a bit .

DBC Reed said...

Ever wondered how a few strikers could cause the Federal Reserve to stoke up international inflation by issuing debased currency?
Try reading anything on the closing of the gold window in 1971. The Mises Institute's explanation might be to your taste.

We have been lied to about the benefits of a property owning democracy; we have been lied to about who creates money; we have also been lied to about the sources of inflation post Macmillan leading to permanent hysteria about wage inflation and no concern whatsoever about property price inflation.

The worst of all curses : we are living in interesting times.

Mark Wadsworth said...

Striebs, yes of course, it is all very tricky.

Lola said...

DBCR. The collapse of the fake gold standard invented by Keynes and implemented at Bretton Woods was predicted by Mises and others. And Keynes fallacious ideas about the trade off between inflation and unemployment resukted

Lola said...

....predictably in only infkation. (Finger trouble posting from smart phone at airport).

Lola said...

DBCR. Serendipity strikes again.