Aug. 11 (Bloomberg) -- The U.K. trade deficit, which widened to 4.97 billion pounds ($8.9 billion) in June, is set to widen as North Sea oil reserves that were discovered in the 1970s become depleted, said Alex Kemp, Britain's official oil historian.

The trade deficit widened in June from 4.8 billion pounds in May, the government said in a report yesterday, as the surplus in oil declined to 22 million pounds, the lowest since August 1991.

A decline in oil and gas production, which once made up a fifth of exports and now accounts for 8 percent, may threaten as many as 260,000 jobs and put at risk 4.3 billion pounds in tax revenue for the Treasury, said Kemp, who was appointed by Prime Minister Tony Blair to study the history of North Sea oil. The U.K., Europe's second-largest economy, may become a net importer of both oil and gas within three years, Kemp said. Crude oil reached a record $45.04 a barrel in New York this week.

``The balance of payments had been an enormous problem, so when the oil came it made a large difference,'' said Kemp, a professor of petroleum economics at Aberdeen University, in an interview in his London office. ``The issue of the trade gap could now come back again.''

By the end of 2002, the U.K. had produced a total of 32.9 billion barrels of oil equivalent, which includes oil and gas, with remaining reserves possibly as low as 13.6 billion barrels, the latest available government figures show.

Surplus Posted

Burgeoning oil production allowed the U.K. to post a surplus in trade in goods in 1980, 1981 and 1982, the only period since the war when it managed more than a single year of net exports. Since oil and gas production peaked in 2000, the deficit has jumped 43 percent as the U.K. grew faster than its main export partners in Europe.

A widening trade gap means a country has to attract capital from abroad through other means, such as investment, and may result in a decline in the currency or force up interest rates.

The surge in oil prices may make more production possible, though that won't be enough to halt the decline in U.K. output, according to Mike Wagstaff, finance director of Venture Production Plc, a North Sea-focused oil and gas company that has been buying up fields as larger businesses such as BP Plc reduce their presence.

``Some of the small fields suddenly look more attractive at a higher oil price so people will be more willing to look at those,'' Wagstaff said in a telephone interview. Still, ``we've started the decline and that decline is inevitable.''

Net Importer

As early as next year, the U.K., the world's fourth-largest gas producer, will become a net importer while the positive contribution of oil to the trade gap will disappear before the end of the decade, according to forecasts by Kemp and the U.K. Offshore Operators' Association, an industry lobby group.

Trade in oil accounted for 8 percent of the U.K.'s total exports of goods last year, down from a peak of more than a fifth in 1985, when taxes from the North Sea made up a 10th of central government revenue.

The trade deficit widened between 2002 and 2003 by 1.6 billion pounds to 32.7 billion pounds, and 1.3 billion pounds of that can be attributed to a decline in oil exports to 5.1 billion pounds. As that pattern continues, the pound may suffer, said Terry Barker, chairman of consultant Cambridge Econometrics.

``It essentially means the exchange rate will be lower than it would be otherwise,'' said Barker, editor of ``The British Economy after Oil,'' in a telephone interview. ``The pound stayed up for much longer than it would have done'' thanks to oil and gas production.

Declining production and oil prices will cut North Sea tax revenue in half by the end of the decade, according to forecasts by Wood Mackenzie Ltd., based on companies' tax liabilities. If oil prices defy the consultant's expectation of declines and remain near current record levels, that reduction will still take place by 2013, it says.

Falling Revenue

``There will be an impact on the government as production volumes decline,'' said Rhodri Thomas, head of European research at Woodmac. ``We will see falling revenue in the long term but if the oil price remains flat it looks like there will be a plateau for a few years.''

The government is also concerned about how the U.K. will meet its energy needs as it relies on imports of fuels. More than two- thirds of the U.K.'s electricity is generated using gas, creating the risk of blackouts should supplies fail.

``We've got used to being an exporter of energy, now we are becoming an importer,'' said U.K. Trade & Industry Secretary Patricia Hewitt, in an interview last month. ``We've got to make sure that we are importing our energy, where we have to, from different countries and different suppliers so we don't have to risk our energy supplies.''

Last Updated: August 11, 2004 01:31 EDT