In a “surprise” turn, Sunak has given the green light to drilling in the North Sea. But will this result in any material increase in oil production, and if so, when? Furthermore, if oil is found, will this result in the UK actually having greater energy security?
From the article:
Will the move unleash a torrent of new production?
Decades can pass from the award of a licence to first production of oil and gas, and in many cases it never even happens. For example, the licence for the controversial Rosebank field that could potentially get the go-ahead for development this year was awarded in 2001.
North Sea oil and gas resources are mostly tapped out and production has steadily declined since its peak more than 20 years ago. The iconic Brent facility, which once produced as much as half a million barrels a day, has been mostly dismantled. The only oil field to come online last year, called Evelyn, pumps no more than 6,000 barrels a day.
Even if a new licence yields a discovery, many questions will have to be answered before it can be declared economically viable: How many barrels are in place? Is the field close to existing infrastructure? Does it lie in shallow or deep water?
As Wood Mackenzie analyst Greg Roddick points out, “no commercial discoveries have been made on new acreage awarded through licensing rounds since 2014.”
Is this good for UK energy security?
The UK imports about 40% of the oil and gas it consumes, yet about three quarters of the crude pumped within the country was exported last year. That’s because so much of the nation’s refining capacity has been shut down — about half over the past two decades — that the country is heavily dependent on imported fuels.
Britain also has very little natural gas storage, so it often exports the fuel to Europe during the summer and imports it back again during periods of peak demand in winter.
So there is no guarantee that additional oil and gas produced in the UK would remain there, and the country is very much exposed to swings in international price benchmarks over which its tiny share of global production — about 1% last year — has little influence.
So Sunak’s embrace of drilling appears to be just a move to appease worried Brits about energy security. It won’t actually lead to any more security in reality.
But perhaps more importantly — this is evidence that the net zero hogwash is a side effect of cheap energy and cheap money. You see, it’s only under the complacency of abundant relatively cheap energy (thank you, Russia) that folks managed to achieve the hubristic view that “net zero emissions” is in fact both good and necessary. It is neither.
Anyway, the Sunak’s move illustrates that everyone is a greenie until it hurts their pocket, and now these muppets are facing increased pressure from reality and a restless peasantry. When the fit hits the shan and public sentiment changes so too will we see increasingly politicians seek to take advantage of the shift in public opinion. After all, being the parasitic leeches most of them are, this would be only natural.
Decline For a Rally
Energy companies just reported the steepest decline in operating rigs in three years. The lack of urgency among these businesses to boost production is paving the way for another strong rally in oil and gas prices, ultimately creating further upward pressure on inflation. Seems like oilers are more interested in paying dividends or buying back stock than investing in future growth. We’re fine with that. If we have to sit and compound returns via dividend payment while share float contracts, we’re as happy as a dog with two tails.
It is bizarre to think that the US oil and gas rig count is about half the level of 2018 and yet the oil price is about 20% higher.
Don’t be thinking that the US is any different than the world in general.
Sooner or later this lack of investment is going to catch up with oilers, the oil price will boom, and so too will investment. We just gotta be patient and invested well before the boom times… which is what we are doing.
Editor’s Note: The Western system is undergoing substantial changes, and the signs of moral decay, corruption, and increasing debt are impossible to ignore. With the Great Reset in motion, the United Nations, World Economic Forum, IMF, WHO, World Bank, and Davos man are all promoting a unified agenda that will affect us all.
To get ahead of the chaos, download our free PDF report “Clash of the Systems: Thoughts on Investing at a Unique Point in Time” by clicking here.
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