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ECONOMIC REPORT
2016
40
With input costs associated with oil and gas operations falling sharply, it is
important to consider the extent to which the reduction in UK operating costs
is a result of industry-wide cost deflation compared with operational efficiency
improvements.
The
IHS Upstream Operating Cost Index
22
measures quarterly changes in the
costs of oil and gas field operations. This shows that in quarter two of this year,
global upstream operating costs were on average 17 per cent lower than at their
peak in the second quarter of 2014. Meanwhile, UK UOCs have fallen by around
45 per cent over the same period.
The scale of the cost reduction in the UKCS is more than double the natural
upstream operating cost deflation, suggesting that efficiency gains have been
key to the improvement in the UK’s competitiveness. While the natural cost
deflation reported by IHS will inevitably be influenced by oil price, there is a
reasonable expectation that the efficiency improvements made will be sustained
even if prices recover.
Figure 28: Global Upstream Operating Cost Index versus UKCS Unit Operating Costs
0
10
20
30
40
50
60
70
80
90
100
110
2014
2015
2016
Index
Global Unit Operating Cost Index
UK Unit Operating Cost Index
Source: IHS, Oil & Gas UK
22
See
www.ihs.com/info/cera/ihsindexes/Index.htmlEfficiency gains
have been key
to the
improvement
in the UK’s
competitiveness.