Country Analysis Brief: United Kingdom
Country Analysis Brief: United KingdomLast Updated: March 19, 2018OverviewThe United Kingdom (UK) is the second-largest producer of oil and the third-largestproducer of natural gas in OECD Europe.United Kingdom (UK) oil and natural gas production have grown on average almost 9% and 4% per year,respectively, from 2014 through 2016. Among European countries in the Organization for EconomicCooperation and Development (OECD), the UK was the second-largest producer of petroleum and otherliquids in 2016; only Norway produced more. The UK was the third-largest producer of natural gas inOECD Europe, surpassed only by Norway and the Netherlands. High oil and natural gas prices throughlate 2014 encouraged high levels of investment in the industry and have led to recent productionincreases. However, since then prices and investment have declined, and production is likely to return toits long-term declining trend.The UK is the fifth-largest economy in the world in terms of gross domestic product. Following years as anet exporter of crude oil and natural gas, the UK became a net importer of both fuels in 2004 and 2005,respectively, and in 2013 the UK became a net importer of petroleum products, making it a net importerof all fossil fuels for the first time.On June 23, 2016, in a general referendum, the UK voted to leave the European Union (EU). Britain’sexit from the EU has been commonly termed Brexit. On June 19, 2017, the UK and the EU begannegotiating the terms under which the UK would leave the EU. Among the concerns for the oil andnatural gas industry are the potential for Brexit to impact tariffs on imports and exports and the potentialimpact on the employment of EU workers in the UK oil and natural gas industry. 1Renewable energy use, particularly in the electric power sector, has more than doubled in the UK over thepast decade (2007–16). However, petroleum and natural gas continue to account for most of the UK'senergy consumption. In 2016, petroleum and natural gas each accounted for 38% of total energyconsumption (Figure 2). 2 The share of coal in total energy consumption in the UK has declined rapidlyover the past several years from 19% in 2012 to 6% in 2016.1
Figure 2. United Kingdom total primary energy consumption bysource, 2016natural al6%Source: U.S. Energy Information Administration based on Digest of UK Energy StatisticsFigure 1. Map of United KingdomSource: Central Intelligence Agency, The World Factbook2
Petroleum and other liquidsThe UK's oil production and consumption have been on a long-term declining trend,although since 2014, both have generally been flat or increasing.Oil consumption in the UK peaked in 1973 at about 2.4 million barrels per day (b/d) before declining to1.5 million b/d in 1983, and recovering to average 1.8 million b/d from the late 1980s through 2007.Since 2007, consumption has been gradually declining, reaching 1.5 million b/d in both 2013 and 2014.Petroleum and other liquids production peaked in 1999 at slightly less than 3.0 million b/d beforedeclining to 0.9 million b/d in 2014. Since 2014, consumption and production have both been generallyflat to increasing (Figure 3). The UK has been a net importer of crude oil since 2005, and in 2013, thecountry also became a net importer of petroleum products.Figure 3. United Kingdom petroleum and other liquids production andconsumptionmillion barrels per 62017Source: U.S. Energy Information AdministrationSector organizationThe UK government has decreased tax rates for the oil and natural gas sector to encourageinvestment by making UK projects more competitive.The UK government does not hold a direct interest in oil production, but the sector remains important tothe government because of its contributions to the overall economy. According to the UK’s Oil and GasAuthority (OGA), in 2016 the oil and natural gas industry spent nearly 9 billion British pounds sterling(GBP) on capital expenditures (more than US 12 billion) and more than GBP 8 billion on operations(more than US 11 billion). 3 The OGA is a government-owned company charged with both regulating3
and promoting the oil and natural gas industry in the UK. Its responsibilities include issuing oil andnatural gas licenses, collecting data from license holders, and working with the government and privatecompanies to promote investment, collaboration, and efficiency in the industry.In 2011, the UK government implemented several changes in tax structures and rates that applied toproduction from the UK continental shelf (UKCS). Collectively, these changes significantly increased taxrates on the oil and natural gas industry in the UK. Higher tax rates, along with high operating anddecommissioning costs for fields in the North Sea, made UKCS projects less competitive. A reportcommissioned by the UK government in 2013 recommended adopting a strategy for MaximizingEconomic Recovery (MER) from the UKCS. The government’s implementation of the report’srecommendations included decreasing the maximum marginal tax rates on profits from oil and natural gasproduction from 81% to 40%.Oil and natural gas taxes in the UK have two components, the Ring-Fence Corporation Tax (RFCT), witha maximum rate of 30%, and the Supplementary Charge (SC), with a maximum rate of 10%. Tax ratescan be lower after credits for capital investment or other reductions are applied. A third part of oil andnatural gas taxes, the Petroleum Revenue Tax (PRT), has been permanently reduced to zero, butcompanies may still claim losses (such as for decommissioning expenses) against past PRT payments,which can result in a tax refund. 4 These taxes are in addition to the normal direct and indirect taxes thatcompanies pay including employment taxes, value-added taxes (VAT), and customs duties.For the 2016–17 fiscal year, UK government revenues from the oil and natural gas industry were thelowest since records began in the 1968–69 fiscal year. Revenues from the RFCT and SC amounted toGBP 336 million, but the PRT resulted in a charge to the government of GBP 654 million, which resultedin total net revenues of negative GBP 316 million. 5 However, government revenues from customs duties,VAT, employment, and other taxes not separately reported for the oil and natural gas industry areestimated to have exceeded GBP 1 billion. 6Exploration and productionUK total petroleum and other liquids production grew on average almost 9% per year from 2014through 2016.Oil production peaked in 1999 at slightly less than 3.0 million b/d after oil companies developed anumber of oil fields in the North Sea. After 1999, petroleum and other liquids production in the UKdeclined at an average annual rate of 8% through 2014, when production fell to 0.9 million b/d. From2014 through 2016, production grew on average almost 9% per year. 7 Production in 2017 was nearly thesame as in 2016.Much of the increase in production since 2014 is attributable to new fields brought online over the pastcouple years. Petroleum development projects in the North Sea generally have long lead times, meaningthat production from a new field occurs several years after the decision to develop that field. Thus, therecent increases in production are mainly a result of investment decisions made several years ago, whenBrent crude oil prices were much higher.Although production in the UK has not yet responded to lower oil prices, investment in the UK’s oil andnatural gas industry is declining. This decline will likely lead to lower production in the future.According to the Oil & Gas Journal (OGJ), the UK had 2.1 billion barrels of proved crude oil reserves asof the end of 2017, almost 20% lower than the level at the end of 2016. 8 Most of the UK's reserves are4
located offshore on the UKCS, and most of the liquids production occurs in the central and northernsections of the North Sea.Oil gradesThree main grades of oil are produced in the UK: Flotta, Forties, and Brent blends. They are generallylight and sweet, which makes them attractive to foreign buyers. Flotta is the smallest and lowest-quality(36.64 API and 0.66% sulfur) stream produced in the UK. Flotta crude oil is loaded at the RepsolSinopec Resources-operated Flotta terminal in the Orkney Islands, Scotland. 9Forties blend is made up of oil from more than 50 fields spread over a large area of the North Sea, thebiggest of which is the Buzzard oil field. Forties blend is a light (about 39 API) sweet (about 0.7%sulfur) crude oil, but the overall quality can vary based on Buzzard field volumes, which are heavier(32.6 API) and more sour (1.44% sulfur) than the rest of the blend volumes. The Forties system occupiesmost of the Central North Sea, located south of the Brent complex and east of Flotta. Once produced,Forties blend is shipped via the 105-mile pipeline to Cruden Bay, Scotland, where it is pumped another130 miles to Hound Point, at the Forties' loading port, which is also in Scotland. 10Brent blend is a light (40.1 API), sweet crude (0.35% sulfur). 11 More than two dozen UK fieldscontribute to the blend, although very little production comes from the once-prolific Brent field, afterwhich the stream was named. The Brent blend is transported to the Sullom Voe terminal via pipelines.This terminal, located in Scotland’s Shetland Islands, is operated by Enquest, which acquired a 3% stakeand the operatorship of the terminal from BP in 2017. 12 Despite the declining physical volumes associatedwith the Brent blend, its importance as a financial benchmark is increasing.Brent benchmark crudeA benchmark crude is a specific crude oil that is widely and actively bought and sold, and to which othertypes of crude oil can be compared to determine a price by an agreed-upon differential. The Brentbenchmark, the most widely-used global crude oil benchmark, is composed of five crude oil blends:Brent, Forties, Ekofisk, Oseberg (BFOE), and Troll, which was added January 1, 2018. The Brent andForties blends are produced offshore in the waters of the UK, and the Ekofisk, Oseberg, and Troll blendsare mainly produced offshore in the waters of Norway.The Brent benchmark was originally based on the output of the Brent field, a single field in the UK’ssector of the North Sea. At its peak in 1984, the Brent field alone produced more than 400,000 b/d fromfour platforms. During the late 1980s, production declined rapidly, and after a brief resurgence in theearly 1990s, the declines resumed. In 2014, production ceased from two of the three remaining, operatingplatforms in the Brent field. Production from the single remaining platform in 2016 averaged less than1,000 b/d and is likely to be shut down in the near future, leaving the Brent blend to continue on with noBrent crude oil.As production from the Brent field declined, other fields and blends were added. Although the benchmarkitself accounts for only a small portion of total world crude oil production, it remains a key indicator forworld crude oil pricing.UK's oil fields and operatorsIn 2016, Nexen was the largest oil field operator in the UK in terms of oil production. Nexen is a whollyowned subsidiary of the China National Offshore Oil Corporation (CNOOC). In 2016, Nexen operatednine fields in the UK, which produced a total of about 235,000 b/d in 2016. Nexen-operated fieldsaccounted for 24% of total UK production in 2016.5
The UK's largest producing field in 2016 was the Nexen-operated Buzzard oil field, which produced anaverage of 150,000 b/d during the year (Table 1). 13 Buzzard field came online in 2007, and productionpeaked at slightly less than 200,000 b/d in 2008.Table 1. The United Kingdom's top 10producing oil fields, 2016Thousandbarrels per dayFieldBuzzard150Golden lloch26Captain24Kinnoull22Clair20Total top 10 fields432Total UK978Source: U.S. Energy Information Administration based on UKEnergy Portal Petroleum Production Reporting SystemConsumption and importsIn 2016, the UK consumed 1.6 million b/d of petroleum and other liquids. The transportation andindustrial sectors accounted for more than 90% of petroleum consumption (Figure 4). 14Demand for middle distillates, in particular diesel, has steadily increased in the UK. Distillate fuel oilaccounted for 36% of UK consumption, and motor gasoline and kerosene jet fuel each accounted for 17%in 2016. 15 Demand for motor gasoline has fallen gradually since 1990 as more drivers switch to dieselvehicles and as vehicle efficiency increases.6
Figure 4. United Kingdom petroleum demand bysector, tation71%electricity, heat,and other1%Source: U.S. Energy Information Administration based on Digest of UK EnergyStatisticsThe United Kingdom’s domestic refining sector is a significant crude oil importer, receiving 0.9 millionb/d in 2016. Norway supplied 64% of the UK’s imports of crude oil in 2016. African countries,particularly Nigeria and Algeria, supplied 21% of crude oil imports. Other Europe and Eurasia supplied7%, with most of that coming from Russia. The Americas and the Middle East supplied 5% and 3%,respectively (Figure 5). 167
Figure 5. United Kingdom crude oil and condensate imports byorigin, 2016Nigeria7%Russia6%Algeria5%Saudi Arabia3%Canada3%Angola2%Libya2%Norway64%United States1%Equatorial Guinea1%other4%Source: U.S. Energy Information Administration based on UK TradeInfoExportsDespite the large declines in oil production over the past few years, the UK is still oneof the largest petroleum producers and exporters in Europe. The country exportedabout 600,000 b/d of crude oil in 2016.Once a major exporter of oil, UK exports have dropped along with decreasing domestic production. UKcrude oil exports peaked in 2000 at 1.8 million b/d, declining to 0.6 million b/d in 2016. 17 However,despite being a net importer of crude oil and petroleum products, the UK is still one of the largestpetroleum producers and exporters in Europe.Most of the country’s crude oil exports (72%) went to EU countries, mainly the Netherlands andGermany. The bulk of the exports to Germany are for refining and consumption there, while exports tothe Netherlands include oil ultimately destined for other countries. Most of the non-EU export trade waswith China (14%) and South Korea (8%) (Figure 6). 188
Figure 6. United Kingdom crude oil and condensate exports bydestination, taly3%United States3%Netherlands35%Sweden2%Canadaother 2%2%Source: U.S. Energy Information Administration based on UK TradeInfo9
PipelinesThe UK has an extensive network of pipelines that carry oil extracted from North Sea platforms to coastal terminals in Scotland and in northernEngland. The network includes six major pipelines (Table 2). 19 Many smaller pipelines transport petroleum liquids from individual fields to themajor pipelines for transport to shore. Pipelines in the UK are privately owned and operated; however, any qualified shipper can access thepipelines.Table 2. United Kingdom's major crude and condensate ilityStatusNorpipeoperating0.8Piper-FlottaBrent PipelineSystem (BPS)operating0.4operating0.1OriginEkofisk area fields(Norway) with a220 spur to UK fieldsPiper, Claymore,Golden Eagle and130 other nearby fieldsCormorant-A95 platformoperating0.9109 Ninian area fieldsNinian PipelineSystemDestinationTeesside, Englandoil terminal andrefineryFlotta oil terminal,Orkney Islands,ScotlandSullom Voe terminalDetailsstarted operations in 1975; operated byConocoPhillipsstarted operations in 1976; operated byRepsol Sinopec Resourcesstarted operations in 1978; operated byTAQAstarted operations in 1978; operated byEnQuest which acquired a stake in thepipeline and operatorship of it from BPin 2017Sullom Voe terminalHound Point crudeexport terminal andGrangemouthrefinery andstarted operations in 1975; operated bypetrochemicalIneos which acquired the pipeline fromForties PipelineSystem (FPS)operating0.6235 Forties area fieldscomplexBP in 2017Forties Pipelinestarted operations in 1993; operated byBruce-Fortiesoperating0.3154 Bruce area fieldsSystemBPSources: U. S. Energy Information Administration based on ConocoPhillips, Repsol Sinopec Resources, TAQA, Enquest, Ineos, and BP10
Refining sectorThe UK had 1.4 million b/d of refining capacity at the end of 2017, according to OGJ. 20 Refinery outputdecreased by 2% from 2015 to 2016. 21After a long period as a net exporter of petroleum products, the UK became a net importer of petroleumproducts in 2013, with total net product imports growing to 215,000 b/d in 2016. UK refineries producemore gasoline and fuel oil than is used domestically, so the UK remains a net exporter of these products.However, because UK refineries cannot meet local demand for many other fuels, including diesel,imports continue to grow. Net diesel imports in 2016 were 242,000 b/d, up about 10% from the 2015level. In 2016, net imports of diesel accounted for 48% of total UK diesel demand. 22 The largest source ofimported diesel was the United States, accounting for 24% of total diesel imports in 2016. Russiaaccounted for 21% of UK diesel imports, and the Netherlands accounted for 19%. 23Hydrocarbon gas liquidsUK production of hydrocarbon gas liquids (HGL) has been generally declining, reflecting the downwardtrend in UK natural gas production and refinery output. HGL refers to both the natural gas liquids(paraffins or alkanes such as ethane, propane, and butanes) and to olefins (alkenes) produced by naturalgas processing plants, fractionators, crude oil refineries, and condensate splitters but excludes liquefiednatural gas and aromatics. HGL are produced in association with both natural gas and petroleumproducts.Figure 7. United Kingdom ethane supplythousand barrels per day100908070605040imports302010production0Source: U.S. Energy Information Administration based on Digest of UK Energy Statistics11
As a result of falling natural gas production in the North Sea, UK domestic ethane production declinedfrom a peak of 93,000 b/d in 1999 down to 16,000 b/d in 2015 (Figure 7). 24 UK petrochemical producerswhich require ethane as a feedstock, began importing ethane from Norway in 2007, but supplies provedinsufficient. One petrochemical plant, the INEOS Train 2 ethylene cracker at Grangemouth, was shut. 25More recent imports from the United States, starting in September 2016, have allowed both a restart ofthe INEOS Train 2 plant as well as the increase or re-introduction of ethane as feedstock to other ethylenecrackers in the UK, including the ExxonMobil/Shell plant at Mossmorran and the SABIC plant atWilton. 26Natural gasThe UK's natural gas production and consumption have been on a long-termdeclining trend; however, since 2014, both have been flat or have increased.UK natural gas production peaked in 2000, and consumption peaked in 2004 with both generallydeclining through 2014 (figure 8). From 2014 through 2016, production has grown at an average rate of5% per year, while consumption has grown 7% per year.Figure 8. United Kingdom dry natural gas production and consumptiontrillion cubic : 2016 data are preliminary estimatesSource: U.S. Energy Information AdministrationSector organizationThe UK natural gas sector is fully privatized, including production, transmission, and distribution. Thelargest natural gas distributor in the UK is Centrica, a spin-off of the distribution assets of formally stateowned British Gas. Centrica had a 35% market share in the UK natural gas market at the end of 2016,according to the UK Office of Gas and Electricity Markets (Ofgem). There are five other large suppliers12
(SSE, E. On, Scottish Power,
Mar 19, 2018 · Country Analysis Brief: United Kingdom. Last Updated: March 19, 2018 . Overview The United Kingdom (UK) is the second-largest producer of oil and the third-largest producer of natural gas in OECD Europe. United Kingdom (UK) oil and natural gas production have grown on average almost
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