Oil reserves

Over the five-year period through 2025, the total volume of UK proven oil reserves is forecast to decline at a compound annual rate of 4.8%, falling to 185 million tonnes. The total volume of proven oil reserves is contingent on the rate of total production and reserve additions from new field developments (e.g., those resulting from recent exploration success and reserve revisions in established fields). Relative to UK proven oil reserves, most are offshore and concentrated in the North Sea. Between 1998 and 2018 inclusive, with the latter being the last year of official BEIS-OGA-ONS data, UK proven oil reserves have declined year-on-year, albeit temporarily increased in 2011 and 2018. According to reports commissioned by BEIS, oil production in the United Kingdom Continental Shelf (UKCS) - the UKCS is the region of waters surrounding the United Kingdom (e.g., parts of the North Sea, the North Atlantic, the Irish Sea and the English Channel), in which the country has mineral rights - peaked at circa 2.9 million barrels per day in 1999, and subsequently entered into terminal decline, driven by the maturing of many of the major fields, a lack of significant new discoveries, and a lack of new investment. In 2011, however, the volume of proven oil reserves increased by 10.4%, bucking the long-term trended decline. According to offshore industry association Oil & Gas UK (OGUK), the number of probable or possible new fields developments reported (73) were up 30.4% in 2009, from 56 in the year prior, reflecting what OGUK estimated to be a 60% increase in total untapped reserves over the two-year period through 2009 - this led to the volume of reserves increasing in 2011 as new discoveries made in preceding years were subsequently stockpiled.

However, between 2012 and 2017 inclusive, the volume of UK proven reserves declined year-on-year. Despite the unexpected discovery of new field developments suitable for exploration activity in late-2000s, the UKCS is a mature oil and gas province, with OGUK proclaiming that new discoveries are typically less than one tenth to one hundredth of the size of the fields found in the early days of the UK offshore exploration sector. Twinned with the difficulty of extracting oil in harsh environments, the limited prospect of new discoveries, particularly in the North Sea, curbed the propensity of UKCS companies to dedicate any overwhelming capital investment to new field development exploration and drilling activity. Moreover, the decline in proven oil reserves accelerated during the 2014-2016 oil price crash, as a grip on the potential yield for oil production companies, by way of lower selling prices, squeezed UKCS companies' exploration budgets for the harsh environment discovery of new reserves. Indicative of this trend, proven oil reserves declined by 6.7% in 2015 despite a net transfer of 20 million tonnes of oil from probable to prove reserves, as overall production recorded a stark contraction.

The decline in the volume of UK proven oil reserves slowed in 2016 through 2017, in large part, albeit inadvertently, owning to a recovery in oil commodity prices - as oil prices rallied, the yield on UKCS oil companies' output rose and allowed for a wider harsh environment exploration budget. Moreover, owing to recent start-ups and improved production from existing fields (e.g., infill drilling), oil production stabilised pro tem; exemplary of the former, BP's multi-billion-pound Quad 204 project which, having started production in 2017, is a redevelopment of oil fields located 175 kilometres west of the Shetland Islands. However, these factors were unable to stem and or revert an overall sustained decline in proven oil reserves though 2017, seemingly due to a persistent lack of investment by the offshore exploration sector as a whole, coupled with maturation of existing field developments. In 2018, however, the total volume of UK proven oil reserves increased by 8.1%, the first year-on-year increase since 2011 (10.4%). Published in July 2019, the OGA's 'UK Oil and Gas: Reserves and Resources' report pointed to investment in new field developments and incremental projects as reason for 'exploration success in 2018', which delivered significant additions to the UK's total contingent oil reserve resources. However, the OGA advocated an increase in reserves with cautious optimism, stating that the rate of replacement of proven and probable reserves is limited by swift resource maturation from new field developments. Following on from the so-called 'exploration success' in 2018, the volume of UK proven oil reserves is presumed to have reverted into decline (-5.8%) in 2019 as those new field developments moved towards maturation. Moreover, as stated in the OGA's 'UK Oil and Gas Reserves and Resources' publication, submitted in September 2020, an indicative year-on-year decline in reserves in 2019 was 'a result of production...not being offset by additions to the reserves base as a result of Field Development Plan ('FDP') approvals and reserves adjustments for producing fields.

In 2020, the total volume of UK proven oil reserves nosedived by 22.7% year on year, as the rate of oil exploration decelerated and reserve additions from new field developments were effectively postponed at the height of the pandemic. The COVID-19 (coronavirus) pandemic and a resultant exogeneous economic shock, typified by severe market disruption consequent of a plethora of public health restrictions, caused demand for petroleum- and oil-based products to plummet at an unprecedented rate. Exemplary of lacklustre petroleum demand, the price per barrel of Brent crude oil - the international oil price benchmark - traded as low as US$15.98 (approximately £12.31) on 22 April 2020, a level not seen since mid-1999. Accordingly, oil producers were effectively forced to halt production, offload a supply glut and put a lid on exploration efforts while demand remained at a near-record low. As per OGA data in respect to oil and gas drilling activity, exploration and field development volumes, recorded in total well number terms, declined by 56.3% and 44.6% in 2020 respectively. Regarding oil reserves, the United Kingdom and global markets firstly developed a propensity to leave reserves in the ground, until petroleum demand rebounded, and were secondly unable to identify proven oil reserves at a rate similar to pre-pandemic levels, considering exploration efforts and new development starts were limited by a hiatus in industrial production activity. While pandemic-induced market implications for oil exploration and new development efforts have extended into 2021, the gradual reopening of global economies, in tandem with vaccine rollout, facilitated a rebound in downstream oil demand, subsequent to a year where a nadir in industrial output was apparent. Accordingly, albeit still at a relatively modest rate comparable to historical standards, oil producers resumed fuel exploration activity to make up for lost time, making new additions to the UK's reserve stock in the process. In turn, oil reserve volumes increased by 8.9% in 2021, more so reflecting market stabilisation and a return to levels more in line with the long-term trend.

Amid a continued easing of pandemic-related restrictions and a return to a "more normal" operating economy, the UK's oil reserves are forecast to increase by 14.2% over the current year. However, this will primarily be due to the significant surge in the price of oil during this year. On the morning of 24 February 2022, President Vladimir Putin announced that Russia was initiating a "special military operation" in the Donbas region, and proceeded to launch a full-scale invasion into Ukraine. This then led to various economic and diplomatic sanctions from Western countries, including the UK, towards Russia. These sanctions have been met with threats from Russia and orders my President Putin to place Russian nuclear deterrent forces on high alert. While the global and domestic economic outcome of the Russian-Ukrainian war is uncertain at this stage, it the price of oil has increased and remained high.

This is because of the response to Russia's actions, whereby energy giants such as Shell, BP and Exxon have pulled out of Russian energy deals, while the many Western countries have announced a ban on importing Russian oil and other petroleum products, which has significantly disrupted the supply chain. In addition to this, higher prices oil prices as a direct result of Russia's invasion of Ukraine have been compounded by strong consumer demand across the globe as the world has attempted to recover from the pandemic and weak supply as the leading oil-producing nations throttle output. Following Russia's invasion of Ukraine, the price per barrel of Brent crude oil - the international oil price benchmark – jumped above US$100.00 in March 2022, reaching an eight-year high of $127.00 on 8 March 2022. Since the invasion, the price per barrel of Brent crude oil has near-enough consistently remained over $100.00 and at the time of publication, the price is $102.00 on 21 July 2022. With the price of oil projected to remain high over the current year, oil producers are expected increase production and extend exploration efforts while demand is high.