The sight of a convoy of giant tankers last week carrying emergency petrol supplies to the UK is a glimpse into the future. Last weekend's strike at the Ineos refinery at Grangemouth, which helped push up oil prices to a new record of $120 a barrel, reminded us how dependent we have become on North Sea oil - and how we will have to cope in the not-too-distant future when it's all gone.
When the refinery closed, BP also had to shut down the Forties pipeline that supplies it with oil. This pipeline carries about 700,000 barrels of oil - or almost half of the UK's daily production - from the North Sea. The strike has ended but oil production from the North Sea, which now barely meets UK demand, is declining much more quickly than predicted.
By 2020, oil and gas production could be one-sixth of today's level, according to the most pessimistic forecasts - enough to meet only 8 per cent of UK demand. Despite the soaring oil price, companies are drilling fewer exploration wells in the North Sea and investment levels have also started to fall.
Malcolm Webb, chief executive of the trade association Oil & Gas UK, warns that unless these trends are reversed, some nine billion barrels of oil and gas - about nine years' worth of production at today's levels - could be left at the bottom of the sea forever. This would cost the cash-strapped Treasury billions in lost tax revenue - and more importantly would hasten Britain's total dependence on countries such as Russia and the Opec members for its oil and gas.
Oil was discovered in the North Sea in the late 1960s, with production peaking in 1999 at about 4.5 million barrels per day. The oil fields have yielded 36 billion barrels to date. Since then, production has declined every year. Currently it stands at about 3 million barrels per day and is forecast to decline about 10 per cent by the end of the decade.
The decline has long been forecast. But what no one knows is how steep it will be - nor when the oil will finally run out. The government estimates that there are still between 16.5 and 25.5 billion barrels of oil to be recovered in the North Sea. Based on current production levels, that equates to 16 to 25 years of production left. But these figures include oil yet to be discovered, so are unreliable. Using companies' plans, fewer than 10 billion barrels would be delivered. That would see the North Sea run dry within a decade. It seems the government has finally woken up to the fact that the industry itself will determine how much longer the North Sea lasts.
Gordon Brown pleaded with BP and Shell last week to spend some of their combined £7bn record first-quarter earnings on pumping more crude out of the sea bed off Britain's eastern coast. 'I hope that these profits are going to be invested in getting more oil out of the North Sea,' he said.
It's likely his pleas fell on deaf ears. BP has already sold its Forties field - one of the largest in the North Sea. Shell, too, has been selling off its fields there so it can concentrate on bigger, higher-growth projects like its oil-sands projects in Canada.
The oil majors have been replaced by smaller pure exploration and production companies, which have a greater incentive to squeeze the remaining oil out of mature North Sea fields. One such company is Tullow Oil, which spent £200m in 2005 buying two fields from Shell and Exxon Mobil.
John Caskie, Tullow Oil's asset manager for the Caister-Murdoch System area of the North Sea, says: 'Places like West Africa offer high-impact exploration and potential company-changing discoveries. The North Sea, on the other hand, is where we look for steady production within a relatively well known commercial and fiscal environment. The North Sea, if you like, pays the mortgage for guys to explore in places like Africa.'
In other words, companies use the North Sea as a cash cow to fund exploration elsewhere. But companies are spending less time and money looking for new fields in the North Sea itself. They drilled 15 per cent fewer development wells last year compared with 2006. You can't blame them: Oil & Gas UK estimates 96 per cent of future discoveries will be smaller than 50 million barrels. As Global Insight points out, they pale into insignificance compared with giants like the Forties field, which produced over 2.5 billion barrels.
The fewer new discoveries coming on stream in the North Sea to replenish the rapidly maturing fields means the decline in production will increase even more quickly. As one executive of an oil company admits: 'The reality is that these fields are in decline as soon as production begins. Everyone is running just to stand still.'
The way the government taxes oil companies is also coming under the spotlight. The tax rate is 50 to 75 per cent, depending on the age of the field. It is hard to compare this with tax regimes around the world. In Norway, the government levies a slightly higher tax rate of 78 per cent. But, crucially, it allows companies to offset the entire cost of exploration as tax relief, even if that exploration does not yield any oil. In the UK, companies can only claim tax relief against exploration if the newly explored field starts generating revenue.
Costs for every aspect of exploration and production are also soaring. While this is the case across the world, higher costs - combined with high taxes - discourage companies from sinking huge amounts of money in the North Sea for relatively small rewards. As Caskie says: 'The UK is competing against places where the potential to make big discoveries is much higher compared with the North Sea. When costs and the tax take are so high, exploration drilling often makes more sense elsewhere.'
Webb says much of the extra 9 billion barrels of oil that could be extracted from the North Sea lies in fields next to those coming to the end of their lives. Unless companies have stronger incentives to start tapping these new fields, they will soon start decommissioning their platforms - leaving those 9 billion barrels out of reach. 'Current investment behaviour will materially affect whether all those extra barrels are recovered,' he warns. 'Unless there is a steady flow of new projects to make use of the existing infrastructure then companies will have to start decommissioning it.'
Last week, Frank Chapman, the chief executive of BG, one of the biggest producers in the North Sea, called on the government to provide greater incentives to develop more fields. Requests for government help may jar with the public when energy companies like BG are enjoying record profits on the back of soaring oil and gas prices. But the reality is that oil companies - even British ones - have no obligation to stay in the North Sea if richer pickings can be had elsewhere.