British North Sea oil output seen at 1977 levels this year

Wed Jan 16, 2013 5:12pm GMT

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* UK oil output to average 0.91 mln bpd, lowest since 1977

* Declines from mature fields, lack of investment cited

* No restart date for TAQA's Cormorant Alpha platform

* Brent prices seen supported by system shutdown

By Claire Milhench

LONDON, Jan 16 (Reuters) - A major stoppage of North Sea oil production serves as a stark reminder of ageing infrastructure and a lack of investment in new developments, which is seen reducing Britain's oil output to 1970s levels in 2013.

The total shutdown of the Brent pipeline system on Tuesday has once again highlighted the challenge facing North Sea producers trying to extract the last drops of oil from dwindling mature fields.

The system was shut down after the discovery of a leak in one of the legs of TAQA's Cormorant Alpha platform, the main hub for the Brent system. The company said on Wednesday that it had no restart date to restore production which is around 80,000-90,000 barrels per day.

Norway's North Sea oil output is also expected to dip to a 25-year low in 2013 as mature fields are being depleted and new developments will take several years to come onstream.

"Despite the significant ramp up in shale output, overall non-OPEC supply has not increased by much and North Sea weakness, along with Brazil and the former Soviet Union, is a big part of that," said Amrita Sen, an analyst at Energy Aspects. "We expect North Sea declines to continue."

The Organization of the Petroleum Exporting Countries (OPEC) said in its monthly oil market report on Wednesday that it expects Britain's oil output to average 0.91 million barrels per day in 2013, its lowest level since 1977.

Explaining the low forecast, OPEC cited natural declines from mature fields and limited new developments. It added that the fall in production was expected to be lower than that of 2012 as it expected fewer unplanned shutdowns and a smaller impact from maintenance.

PRODUCTION OUTAGES

The Cormorant Alpha leak suggests 2013 could be as eventful as 2012, when Britain's Buzzard oilfield was afflicted by repeated outages and prolonged maintenance, increasing oil price volatility.

Buzzard is one of the key contributors to the Forties crude oil stream. Forties and Brent form part of the underlying market for benchmarks Brent oil futures and physical dated Brent. Some two-thirds of the world's oil supply is priced off dated Brent.

"The shutdown of the Brent oil pipeline system is without question a key factor for the Brent market and the extent of the shutdown suggests that a resumption of operation might not take place immediately," analysts at JBC Energy said in a note.

"Accordingly, we expect it to lend some support to price levels in the prompt market, buoying the current backwardation in the Brent market structure further."

Brent futures edged up on Wednesday, against the general trend in markets, as weak European data pushed down other risk-sensitive assets, and as OPEC released a downbeat assessment of demand for its oil output in 2013.

Although physical North Sea crude traders see the interruption to the Brent stream as less significant than an interruption to Forties, the Cormorant outage is symptomatic of the region's problems.

Last year, Total's Elgin-Franklin platform was also halted following a gas leak, and remains offline.

"Memories of the March 2012 Elgin/Franklin gas blowout, as well as a repeat of outages of the likes of Buzzard and Ekofisk, are still fresh as problems with ageing installations in the UK sector of the North Sea continue," noted JBC Energy.

New investment in British oilfields has been stymied in recent years by a lack of clarity around the tax treatment of decommissioning liabilities for ageing North Sea assets.

The government is moving towards resolving this issue , triggering an increase in M&A and investment activity in the last two months, but analysts like Sen warn that it will take time for this to filter through.

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