THE crisis facing the North Sea oil and gas industry, with predictions of tens of thousands of job losses generated by the slump in the oil price, is "deeply worrying," a senior member of the Cabinet has admitted.

 

Danny Alexander, the Chief Secretary to the Treasury, said his sympathies lay with workers and communities, particularly in the north east of Scotland, who are facing a bleak Christmas because of the uncertainty over their futures.

He said: "This is something that has a big effect on a lot of individuals and communities, especially in the north east of Scotland".

The Highland MP stressed that the industry had weathered crises before and, working with the UK Government and the new regulator, could do so again, helped by the Treasury's new tax incentives package.

The senior minister was responding to alarming remarks from Robin Allan, Chairman of the independent explorers' association Brindex, who warned the sector was "close to collapse" because of the near halving of the oil price in just a few months to around $60 a barrel.

Describing it as a "huge crisis" facing the industry, he said it was "almost impossible to make money" at such a price and predicted there would be no new investments in the North Sea as a result.

"This has happened before and the industry adapts," said Mr Allan, "but the adaptation is one of slashing people, slashing projects and reducing costs wherever possible and that's painful for our staff, painful for companies and painful for the country...Budgets for 2015 are being cut by everyone," he added.

On the markets, the oil price slump continued to exert pressure on the rouble despite President Vladimir Putin's pledge to fix Russia's economic woes within two years, including through a promise to diversify the gas-dependent economy.

North Sea concerns were raised at Holyrood with Scottish Labour accusing the SNP Government of being unprepared for the crisis and believing its own spin on oil prices.

Kezia Dugdale, making her first appearance in her new role as the party's deputy leader told MSPs: "Isn't it the truth that the Scottish Government just didn't see this crisis coming because they believed their own wishful thinking about oil prices.

"Surely," she asked Nicola Sturgeon, "we cannot have a First Minister so unprepared, so unsighted on such a key industry. Will she initiate an inquiry into why her Government was so wrong in the past, so that we can get it right in the future?"

Ms Sturgeon stressed how the Scottish Government had invested millions of pounds in innovation in the sector and had supported skills and apprenticeships.

She said the industry wanted politicians to unite to call on the UK Government to fast-track the new investment allowance, to support innovation and reduce the tax on company profits.

"Those whose jobs are under threat right now look at us and want to see us coming together in that way, not having a party political ding-dong," declared the FM.

Industry experts had already warned the North Sea oil and gas industry - one of Britain's biggest which employs 375,000 people, half in Scotland - was facing tough times but the slump in the oil price has deepened concerns.

Research from the investment bank Goldman Sachs has predicted oil firms will need to cut their capital expenditure by almost a third to restore their profitability at current prices.

Acknowledging the plunge in the oil price was "deeply worrying" for the sector, Mr Alexander suggested the Coalition's recently announced tax incentives, including a 2p cut in the tax on profits and a new allowance on investments, would help encourage exploration.

He also hinted a further cut in the so-called supplementary charge could occur in the March Budget.

Stressing how he was "very seized of the importance of continuing to bring down headline rates," he said: "I'm obviously not going to set out things in the Budget because we have not had those discussions yet. But the message is taxes are coming down in the North Sea; taxes are going to keep coming down in the North Sea. I certainly want to see that process go forward at a pace that reflects the challenges the industry is facing."

Insisting he did not underestimate the scale of the challenge, the Liberal Democrat frontbencher added: "But with industry, Government and the new regulator taking the right steps we can weather that challenge and make the North Sea relatively more competitive as a place for global capital to invest in."