Baltimore, MD--The North Sea peaked more than eight years ago. And peak oil has disrupted the North Sea's oil production to the point that the UK is scrambling to exploit its vast reserves. But will they abandon their aging fields for greener arctic oil pastures?

In the early 1960s, Britain's hope of becoming self-sufficient in oil and gas was largely a pipedream. But that nearly impossible wish was granted almost twenty years later.

The reason?

A small gas field off the cost of East Anglia was discovered by British Petroleum in 1965. Ten years later, the dream gained momentum as Hamilton Brothers began delivering the North Sea's first oil production to the UK. Shortly thereafter, BP made a massive find in their Forties field. Exploration in the North Sea exploded, with more than a hundred installations built by the mid 1980s.

In the early 1980s, the goal had been achieved--Britain had officially become a net exporter of oil, and then a net exporter of gas under a decade later.

The millions of barrels of oil extracted every day from the North Sea had become a vital asset to the UK. Unfortunately, it was too good to last--peak oil has sunk its teeth into the North Sea.

Inevitable Doom

According to peak oil theorists, oil isn't going to run out. In fact, the North Sea still has nearly 20 billion barrels of known oil reserves. But oil will eventually become too expensive to extract--and the North Sea is a perfect example.

The North Sea still has oil--nobody is saying otherwise. But production has dropped sharply after peaking in 1999.

According to the United Kingdom Offshore Operators Association's (UKOOA) 2006 Activity Survey, production dropped 9% to 2.9 million boe/d in 2006. Some estimates for the next few years have production falling by almost 17%!

This came during a year of high investment, too. Over eighty new exploration wells were drilled with a 38% success rate (as opposed to the previous year's 24%). Also, ten new fields came online. But the truth is the newer fields aren't nearly as large as the massive ones found decades ago.

And the bad news keeps rolling.

Production is expected to be 250,000 boe/d lower over the next few years. This will account for a loss of roughly £1 billion in tax revenues.

But what caused the decline?

Echoing peak oil theory, the North Sea hasn't given up all of its oil, but rather all of its cheap oil. Increased costs for maintenance and performance and a delay in recent projects can all be blamed.

The UKOOA reports that operating costs averaged $9 to $10 per boe in 2006. This is almost double the $5 to $6 range just three years prior. And the UKOOA anticipates that investments will decline by £1.5 to £4.5 billion in 2007.

Again, the oil is simply becoming too expensive to extract.

The expected rate of decline could virtually eliminate oil production in the North Sea over the next five years!

The Future in Arctic Drilling

Countries like Norway and Russia are already looking elsewhere for offshore oil. Their sights are set on the Barents Sea, where they hope to strike undeveloped oil reserves. Yet the Arctic means expensive and potentially harsh weather conditions for drilling companies. Nonetheless, Norway and Russia have already started claiming areas of the Barents Sea for exploration and development. The ripple effect of Peak Oil grows wider by the month.

Until next time,

Keith Kohl