North Sea oil and gas in ‘paper-thin’ position

Leaders of the UK’s offshore oil and gas industry have warned that the economic impact of the coronavirus and dramatic falls in oil and gas prices are driving “an increasingly fragile outlook” for the sector.

“Severe pressures are already building across the sector’s supply chain, with the pressures expected to significantly undermine the industry’s businesses, jobs and contribution to the economy,” said trade group Oil & Gas UK (OGUK).

The stark warning was made by OGUK, in the first in a series of Business Outlook reports which examine the urgent issues facing the sector.

OGUK chief executive Deirdre Michie said: “Businesses and industries across the UK are facing extraordinary pressures but coming so soon after one of the worst downturns in our history, this report shows that this sector is now in a paper-thin position.

“The offshore oil and gas sector is part of the UK’s critical infrastructure, providing the secure and affordable energy the country needs and is  a key contributor to the economy in terms of supporting hundreds of thousands of skilled jobs, businesses and our wider economic contribution.

“Action is needed now to ensure the sector doesn’t lose the skills, experience and infrastructure it needs to meet the UK’s energy needs of today as well as help deliver its net zero ambitions in future. 

“We appreciate the Chancellor’s recent statement and OGUK is requesting urgent meetings with ministers to consider a COVID-19 Sectoral Resilience Package which would help to give some reassurance to the regions, businesses and jobs this industry supports.

“We’re already working with our members to understand the challenges businesses are facing in these unique and extremely worrying times.”

OGUK market intelligence manager Ross Dornan said: “The first week of March saw the most dramatic fall in oil price in almost 30 years and it remains uncertain as to how the market is going to evolve in the coming months as the coronavirus impact increases each day.

“Alongside this, the gas price has more than halved in the last 12 months, and we face a situation where E&P production revenues are set to be almost 50 percent lower than they were  two years ago despite the same level of output.

“The UKCS has seen significant improvement in its competitiveness, efficiency and productivity in recent years.

“These improvements will help performance, however in this harsh environment we expect companies to take significant steps to preserve cash flow and ensure business continuity.

“This will have a very negative impact on the supply chain, which has not yet seen much recovery from the previous downturn and doesn’t have the capacity to absorb much more pain.

“Companies are increasingly diversifying into other energy sectors and across industries more generally, but many cannot diversify or are too early in their journey to provide adequate protection/buffer.

“At this time innovative thinking, partnerships and meaningful collaboration will be required to help as many as possible to weather the storm.”