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Falling oil prices risk £2billion North Sea investment as extraction becomes unprofitable

THE plummeting oil price is putting £2billion of vital investment in the North Sea at risk, experts warned yesterday.

Analysts Wood Mackenzie said the fall in the cost of a barrel coupled with high operating costs may mean certain fields off the coast of ­Scotland are no longer profitable. The stark news came as prices hit a six-year low. Brent oil – a global benchmark of crude blended from 15 North Sea fields – fell almost three per cent at the start of trading to about $48 per barrel. Major international oil and gas companies are cutting their spending plans as the oil price continues its slide from $110 per barrel just a few months ago. Ithaca Energy, who focus on North Sea production, yesterday said their budget for capital spending this year would be down about 60 per cent from last year. Erin Moffat of Wood Mackenzie said: “The current oil price means 2015 will bring further budget cuts, with exploration spending at the top of the list. “We estimate US$3.2billion (£2.0billion) associated with [not fully approved] projects could be at risk over the next two years as a result of current oil prices.” If the planned investment was delayed or cancelled it would have a major impact on government revenues from the industry. Opec, who control a third of the world’s oil supply, launched a price war against producers in the US and Russia in November by refusing to cut output to prop up the price. The slump has become a political football in Scotland because the North Sea industry is pivotal to the economics of independence . Alex Salmond’s blueprint for a separate Scotland was based on a price of $110 per barrel. Scottish Labour have criticised the UK and Scottish ­governments for not doing enough in the wake of the falling price and warned that more jobs are at stake than were lost at Ravenscraig steelworks near Motherwell in 1992. Chancellor George Osborne has hinted that he is preparing tax breaks for oil firms to try to limit the damage done to the industry but the Scottish Government have demanded quicker action. Both governments will attend an emergency meeting with representatives from over a dozen major oil and gas companies today. Scottish Energy Minister Fergus Ewing said: “We are continuing to challenge the UK Government to maintain the momentum for fiscal and regulatory change in the oil and gas sector, both of which were recognised by Sir Ian Wood as critical to prolonging the life of the industry beyond 2050.” Scottish Secretary Alistair Carmichael said: “The Scottish Government have powers at their disposal on areas such as enterprise, education and skills and ­infrastructure investment.”
Daily Record
Published on:
January 13, 2015
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