UPI Energy Watch

The U.K. government has adjusted North Sea taxes to encourage new oil development.

Two small oil field developments were also announced in an attempt to increase crude oil and gas production and ease record-high prices.

The changes to North Sea oil taxation came with Prime Minister Gordon Brown voicing his concern about the tax burden on North Sea oil companies -- but Britain's oil industry has been lobbying for years to get rid of the petroleum revenue tax.

Challenges to developing new oil fields, like taxes, high costs and regulations, have now been removed and the U.K. Department of Business hailed the government's plans for "increased North Sea oil production." The department gave the go-ahead for two new oil fields, West Don and Don South West, which together would bring an extra 50,000 barrels per day ashore when the oil begins flowing next year.

The changes to the petroleum revenue tax regime would enable even more investment that could add 20,000 barrels per day, the department said.

Unfortunately, oil and gas output in Britain is still likely to continue declining. Its oil and gas output averaged 2.8 million barrels per day last year, down by about 100,000 barrels per day from 2006.

Britain's hydrocarbon output has been in decline since 2001 when it reached 4.2 million bpd and the petroleum revenue tax was introduced.

The industry is still calling for complete abolition of the tax.

Sky-high energy prices are not expected to drop any time soon.

Canada's National Energy Board is predicting continued profits for oil companies and increasing costs for consumers.

In its most recent six-month outlook, the federal regulator said crude oil prices will remain around $130 per barrel and natural gas prices will range from $11 to $13 per million British thermal units.

Canadian electricity supply is expected to be adequate this summer, but prices will rise because of more expensive natural gas.

Those NEB forecasts are reasonable, said Jeff Rubin, world markets chief economist at Canada's CIBC bank. He has predicted $225 per barrel oil in 2012.

"My forecast would be very close to that. My forecast would be that both of those prices will continue to rise," he said.

The oil market likely will continue to be very tight between supply and demand, said NEB oil market analyst Christian Rankin.

Australia is on the verge of housing one of the largest LNG exports.

Santos, a resource company, announced it has signed a deal to partner with Malaysia's national oil company Petronas to build a $7.7 billion plant to convert coal seam gas to liquefied natural gas.

Coal seam gas will be piped from gas fields near Roma and Injune to Gladstone, where it will be chilled and liquefied for export on Curtis Island in Gladstone Harbor.

Santos recently announced Petronas' 40 percent stake and assets worth about $50 billion.

Petronas is the largest liquefied natural gas producer in Asia and the world's third-largest LNG producer.

Santos acting Chief Executive Officer David Knox said the project could become as big as the North West Shelf gas project off the shore of Western Australia.

About 3,000 people will be employed during the construction phase and between 200 and 300 afterward. Between 600 and 1,000 wells will be drilled during the project.

The liquefied natural gas will be exported to Japan, Korea, Taiwan and possibly to China as well.

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Closing oil prices, May 29, 3 p.m. London

Brent crude oil: $125.28

West Texas Intermediate crude oil: $126.24

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(e-mail: energy@upi.com)