Shrinking natural gas reserves limit supply, leading to lower future revenue

Shrinking natural gas reserves limit supply, leading to lower future revenue

Shrinking natural gas reserves limit supply, leading to lower future revenue.The United Kingdom is the third-largest producer of natural gas in the European Union, but production has been falling since 2000-01 as reserves shrink. The Natural Gas Extraction industry is expected to generate revenue of about 21.18 billion in 2010-11, up 24.9% on 2009-10, and up from 18.26 billion five years earlier (yielding revenue growth of 3.0% per year). The expansion was concentrated in 2007-08 and 2010-11, either side of an estimated 35.5% plunge in 2009-10, when natural gas prices slumped in response to weak global growth. The industry's profit is expected to be about 5.10 billion in 2010-11 and it is expected to contribute about 0.8% of UK GDP.

The industry is expected to produce about 663,275 gigawatt hours of natural gas in 2010-11 (equivalent to about 5.88 billion cubic feet per day) in 2010-11. Substantial volumes of natural gas are traded internationally. About 27% of the volume of UK natural gas production is exported, while about 54% of the volume of natural gas consumed domestically is imported. Exports reflect the relatively remote location of the bulk of the country's natural gas reserves, the North Sea, and the availability of accessible export markets from those sites. Imports are required as local demand exceeds supply capacity, and has done so since about 2004. The domestic market for natural gas is valued at about 27.47 billion and the largest single local market is for electricity generation.

The major export destinations for natural gas are Belgium and Ireland, both of which are linked to UK gas fields by pipeline. The major source of imports is Norway. Gas fields in the Norwegian sector of the North Sea are linked to the United Kingdom by pipeline.

The industry employs about 5,024 people, in 2010-11, paying wages estimated at 663.1 million. It consists of about 45 establishments and 15 enterprises. Industry performance is expected to deteriorate over the coming five years. Although natural gas prices are expected to stabilise, continued falls in output will more than offset these price gains. Industry revenue is expected to fall at an average annual rate of about 4.6% over the five years through 2015-16 to 16.76 billion, with profit deteriorating more steeply. The cost associated with extracting natural gas is expected to increase as smaller and more remote fields are developed.

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