Source: http://www.fearnleys.com/index.gan?id=672&subid=0
At the turn of the century, oil production in the North Sea peaked at about 6.3 mb/d. During 1Q09 output was about 4.4 mb/d - a decline of about 30%, or 1.9 mb/d, and the outlook is not bright. This could, however, become a very positive stimulus to tanker demand.
At the turn of the century, oil production in the North Sea peaked at about 6.3 mb/d. During 1Q09 output was about 4.4 mb/d - a decline of about 30%, or 1.9 mb/d, and the outlook is not bright. This could, however, become a very positive stimulus to tanker demand.
About 90% of North Sea output ends up in Europe. This has remained relatively stable over many years, and we observe that a result of the decline in output is a drastic reduction in exports to the USA (down 80% since 2000). With a decline in total output, absolute volumes exported to Europe have declined as well, but during the same period Russia has ramped up production and exports substantially. Exports through the Druzhba pipeline have remained relatively stable, but seaborne exports through the Baltic and Black Seas have risen about 1.6 mb/d over the period. Hence, European refiners have been blessed with abundant supplies of short-haul crude oil despite the 30% loss in North Sea output.
What about the future? Well, it does not look too bright. Based on forecasts given by the Norwegian Petroleum Directorate (January 09) and the UK Department of Energy and Climate Change (March 09), one must expect that oil (and condensate) output declines by another 250 kb/d over the next five years. And that’s the "best" case. The baseline forecast is a drop of almost 800 kb/d and in the worst case the decline is forecast to be a whopping 1.3 mb/d!
This time we don’t think the Russians are there to fill the void. Russian output fell last year, and so far this year output has not risen. Furthermore, the Russians have other commitments (or interests) as well as being absorbed by the new pipeline to China which is expected to be completed late this year. Until the Vankor field is fully developed, oil must be taken from "somewhere" in order to fill the new pipeline to China (and later to the Pacific). Under the circumstances, we believe exports to Europe could actually decline making the deficit even bigger.
Looking beyond the current financial crisis and into 2011/12, we believe we will see a substantial increase in long-haul imports into Europe. This is based on quality issues as well as availability of crude oil, and, finally, we expect a "fight" for crude oil in the future.
The short-haul sources of crude oil are primarily North Africa and the Caspian Sea (Ceyhan). We are not overly optimistic about the prospects for increased North African output increases. For the Caspian Sea the prospects are much better, however, we already now see several countries and refiners outside Europe showing great interest in these volumes. Both Indian and Chinese refiners are interested in sourcing oil from Ceyhan. Another matter is the quality issue. European refiners have been "spoilt" by high quality North Sea crudes for several decades. In order to meet current, and future, product quality standards without big investments, we expect that refineries will target crude qualities that could match the current ones. Hence, we expect that the focus will be on West Africa.
To cut a long story short, we expect to see that imports of crude oil to Europe will increase/decrease marginally in the future, but that we will see a substantial increase in tonne-mile generation following the substitution of short-haul imports by long-haul imports.
