The long-term decline in North Sea crude output has been arrested, with production on track to climb in 2014 for the first time in a decade.
Crude production in the North Sea averaged around 2.6mn b/d in the first six months of the year, according to initial estimates, up marginally from the same period last year. The slight rise in year-on-year production is the first increase in the first half of the year since 2004. The rise compares with a decline at the same point last year of 12pc and a drop of 8pc the previous year. Production levels are benefiting from the high levels of investment in recent years to maximise production from existing fields and to make smaller developments viable.
Maintenance outages in August are likely to restrict growth rates in the third quarter — with production of Forties crude in particular affected by a two-week outage in August. But loading programmes suggests production will rebound strongly in September.
And new start-ups could still push 2014 production rates above those of 2013. New projects that could add to Norwegian output in the second half of the year include Brynhild, Fram, Gudrun, Knarr, Svalin and Valemon. In the UK, Kinnoull, Solan, East Rochelle, Alma, Galia, could also contribute. But a number of projects have been delayed until 2015, including Norway's Boyla and Goliat fields and the Greater Stella project in the UK. And the 70,000 b/d UK Golden Eagle development may not start up until 2015 either, despite a scheduled start-up this year.
The long-term decline in output has been arrested in both the UK and Norwegian sectors of the North Sea. UK production grew in the first half for the first time since 2002, climbing 4pc year-on-year after declining by 14pc last year and by 13pc in 2012. Norwegian production meanwhile climbed by 1.6pc above last year's first-half figure, after falling by 11pc in the first half of 2013 and 5pc in the same period of 2012. The performance in Norway in particular is stronger the expected, with production running 1.4pc above official forecasts for the six months of the year.
The increases were slightly offset by a 16pc decline in Danish crude production. But 2014's figures have been skewed by heavy maintenance on Danish fields in June. In the first five months of the year, Danish production was relatively flat year on year. Dutch production meanwhile climbed for the third consecutive year, rising by 9pc.
But the higher production rates overall have not translated into an increase for all of the North Sea's main crude grades. Of the four key BFOE grades, only Ekofisk has experienced a higher production rate in the first half, with the other three grades continuing their long-term decline. Production of Oseberg crude was down by 20pc year-on-year in the first half, while production of Forties and Brent crude was down by 6pc and 3pc respectively.
The rise in Ekofisk crude production was strong enough to offset the declines elsewhere, with output rising 40pc above the first half a year ago. The grade benefited from the start-up of the UK Jasmine field in November 2013. The field's contribution to the Ekofisk blend approached 57,000 b/d in the first half this year.
But Ekofisk output also benefited from stronger contributions from existing fields. Production from the Ekofisk field itself climbed by around 20,000 b/d from the first half of last year — when a June outage lowered the average. And production from the Valhall field averaged around 44,000 b/d in the first half, up from just 13,000 b/d in the same period a year earlier, following an extensive redevelopment. Production from the field is eventually expected to reach as high as 75,000 b/d of oil equivalent (boe/d) — most of which will be crude.
But more production from existing fields is rare and the North Sea will increasingly rely on new start-ups to offset declines at mature fields. Another North Sea crude to benefit from a new field start up is Norne. Production of the blend approached 40,000 b/d in the first half, after dropping below 24,000 b/d in the first half of last year. It benefited from the start-up of Skuld at the start of 2013.
The field making the largest single contribution to the first-half rise in North Sea output was the Norwegian Skarv field. After coming on stream in March last year, the field's production ramped up to as much as 77,000 b/d earlier this year. Skarv is exported via its own floating, production, storage and offloading (FPSO) vessel, with around four tankers loading each month.
But high costs are threatening future projects with exploration activity already declining. Just 22 wells were drilled in the second quarter, down from 35 in the same period last year. And just seven of those wells were drilled in the UK.
The relatively strong production in the North Sea region has done little to help prices, with differentials for a number of grades reaching multi-year lows in 2014, despite diminished supplies from the Mediterranean. Demand from Europe's refiners has been exceptionally weak over the summer months, while plentiful supplies of West African crudes have also driven down demand for North Sea grades, with few expecting any significant recovery in the second half of the year.
mc/ts/et
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