North Sea
The North Sea contains Western Europe's largest oil and natural gas reserves and is one of the world's key non-OPEC producing regions.
 and the  hold the majority of the North Sea's reserves and production. Denmark, the Netherlands, and  have smaller North Sea oil and natural gas resources.

Information contained in this report is the best available as of August 2004 and is subject to change.

GENERAL BACKGROUND
North Sea oil and natural gas were first discovered in the 1960s. The North Sea, however, did not emerge immediately as a key non-OPEC oil producing area until the 1980s and 1990s, when major discoveries began coming online. Oil and natural gas extraction in the North Sea's inhospitable climate - cold and windy - and at great depths requires sophisticated offshore technology. Consequently, the region is a relatively high cost producer, but its political stability and proximity to major European consumer markets have allowed it to play a major role in world oil and natural gas markets.

A key feature of North Sea oil is its role as one of the major "benchmark" crude oils, the Brent price marker. Because Brent crude is traded on the International Petroleum Exchange (IPE) in London, fluctuations in the market are reflected in the price of Brent. Therefore, the many other crude oils linked to Brent can be priced according to the latest market conditions.

However, with production in the UK North Sea Brent system declining to only around 350,000-400,000 barrels per day (bbl/d), analysts felt that such low output was too small for a benchmark against which a large portion of the world's internationally traded crude oil was directly or indirectly priced. In order to address the issue of declining Brent production, the industry price assessor, Platts, widened the assessment definition of dated Brent by including two similar North Sea crude oils - North Sea Forties (UK) and Oseberg (Norway), as of July 10, 2002. According to Platts, the new method of calculating dated Brent would more accurately reflect North Sea oil market conditions. The new method initially got off to an uneven start, with Royal-Dutch/Shell (co-operator of the Brent system) opposed to the change, and with BP (operator of the 750,000 bbl/d Forties system) in favor. The IPE began using the Platt's Brent formulation (BFO, or Brent-Forties-Oseberg) with its near-month contract on September 13, 2002. On May 1, 2004, Norsk Hydro, the operator of the Oseberg field, introduced a lower-quality crude from its Grane field to the BFO blend. Initially analysts believed that adding Grane crude oil to the BFO crude marker would lessen its value. It appears, however, that the Grane crude has had little impact on the BFO crude marker, at least since its introduction.

OIL OVERVIEW
North Sea offshore crude oil production peaked in 1999, averaging 5.94 million bbl/d. Since then, crude oil production in the North Sea has declined, with an annual rate of decline of 2.8% between 1999 and 2003. In 2003, North Sea offshore crude oil averaged 5.33 million bbl/d, a year-on-year decline of 5.9%, shown in the
 below. In the first half of 2004, North Sea crude oil production continued to fall, averaging 5.2 million bbl/d. Total offshore oil production in 2003 (including crude oil, condensate, and natural gas liquids) was 5.98 million bbl/d. Norway and the United Kingdom are the largest producers of North Sea oil (including crude, condensates and natural gas liquids), accounting for 54.4% and 38.2% of total output, respectively, in 2003. These two countries also experienced the largest year-on-year declines in crude oil production. Only Germany experienced year-on-year growth, albeit small in absolute terms (see ).

Outlook
Although the region will continue to be a sizable producer, crude oil output from its largest producers - the UK and Norway - has essentially plateaued and is projected to begin a long term decline. In the near term, improved oil recovery technologies, continued high oil prices and new projects coming online could temporarily delay declines in North Sea crude oil output. Nonetheless, only new discoveries of sizable volumes could reverse the current downward trend of oil production from the North Sea.

Oil Infrastructure
Ekofisk was the first North Sea oil field to be discovered and developed, in the late 1960s, with production beginning in 1971. The Norpipe pipeline, which connects Ekofisk to Teesside, England, began operation in 1975. Since then, oil companies have built
 to transfer oil to the mainland, as well as to connect individual fields. Additional pipeline connections to the UK include a major pipeline from the Nelson/Forties field area to Cruden Bay, north of Aberdeen. The Piper Flotta pipeline connects northern North Sea production to Scotland's Orkney Islands and two pipelines - Brent and Ninian - to the Shetland Islands ().

Norway has two major oil pipeline connections,  and , which link the Troll fields to . The Oseberg Transport System connects the Oseberg area to Kollsnes. Two new pipelines will connect Grane and Kvitebjørn fields to the Norwegian mainland.

Denmark's oil pipeline system, which is controlled by the Danish state-oil company DONG, connects offshore oil fields to an oil terminal located in Frederica. The oil pipeline system was established in the 1980s according to "The Danish Pipeline Act Concerning the Establishment and Utilization of a Pipeline for Transportation of Crude Oil and Condensate." The Act requires most oil producers in the Danish section of the North Sea to use the oil pipeline. The Netherlands has two small pipelines connecting to offshore fields to the mainland. Most of Germany's oil production is onshore.

Norway 
As of January 2004, Norway’s proven crude oil reserves were 10.45 billion barrels, up 1.7% year-on-year, according to the
Oil and Gas Journal. The increase in proven reserves mainly reflects the incorporation of the Ormen Lange field. Whether Norway eventually develops or discoveries new recoverable oil reserves depends on many factors, such as investment, taxes and the opening of new frontier or virgin acreage to exploration and development activities.

Exploration and Production
In 2003, Norway produced about 4.1% of the world's oil and 6.9% of non-OPEC (Organization of Petroleum Exporting Countries) crude oil. The country’s low domestic oil consumption allows the country to export nearly all of its production, making Norway the world's third-largest oil exporter. Most of Norway’s crude exports go to neighboring countries, with the UK accounting for nearly a quarter, but only 5% of its natural gas liquids (NGLs)/condensate exports. The United States was the largest importer of Norway’s NGLs/condensates exports in 2003, according to the Norwegian Petroleum Directorate (NPD).

In 2003, Norway's total oil production (including crude, condensate, NGLs and refinery gain) was an estimated 3.27 million bbl/d, a 1.8% decrease year-on-year, marking the fourth consecutive year of decline. Crude oil production (including lease condensate) actually fell 4.6% year-on-year, but increased production of NGLs offset the decline slightly. During the first half of 2004, total oil production was up nearly 1% over the same period in 2003, despite an oil-worker strike in June 2004, which shut in some production for about a week. In 2003, there were five new fields that came onstream -- Grane, Fram West, the Mikkel condensate field, and two satellites at BP’s Valhall field (the north satellite field actually began production on January 7, 2004). Fields under development include Statoil's Svale and Staer fields, located near the Norne field, with first oil targeted for the third quarter of 2005, as well as the company's Asgard Q project, due online in January 2005.

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The NPD reported in June 2004 that exploration activity was proceeding, with seven wildcats and five appraisal wells being spudded. In the Norwegian North Sea, two discoveries were reportedly made by Esso and Norsk Hydro, while U.S.-based Marathon appraised reserves that had already been discovered in the early 1990s. In the Norwegian Sea, Statoil discovered oil at its Linerle prospect and delimited its Alve discovery well. In fall 2004, Norsk Hydro and Statoil plan to begin drilling in the Barents Sea. These wells are significant as they mark the resumption of exploration activities in the Barents Sea which had been ...

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