AROUND a quarter of the jobs in the North Sea oilfield services sector could be lost this year amid expected deep cuts in activity in response to turmoil in the market, experts have warned.
Rystad Energy said the combination of the Covid-19 coronavirus and the plunge in the crude price this month will take a devastating toll on the North Sea, which could put thousands of jobs at risk.
North Sea heavyweight to slash spending as crude price plunge leaves sector in crisis
The energy consultancy reckons the oil price fall will prompt firms to slash spending on exploration and new developments resulting in work drying up for the firms that support them.
Concern about the potential for the coronavirus to spread on sites will lead to companies slowing down work.
Rystad predicted the ensuing downturn will result in around a million oilfield services jobs being lost worldwide - representing about 20 per cent of the total number of people working in the services sector.
But a greater proportion of service sector jobs will be lost in the North Sea, with around 25% of the total potentially under threat.
Rystad reckons there are around 150,000 people working in the UK sector of the North Sea. The bulk work for services firms.
The total number includes people employed by firms that operates fields. These are expected to cut staff numbers by up to 20%.
The costs of the crude price plunge must be shared fairly
A 20% cut across the board would reduce total workforce numbers by 30,000, to 120,000.
Rystad noted there are a range of costly projects in the pipeline in the North Sea that are unlikely to go ahead, while strict Heath Safety and Environment regulations are in place.
The prediction from Rystad will alarm North Sea industry leaders as they consider the implications of the dramatic change in market conditions in recent weeks.
Last week industry body Oil & Gas UK called on the government to ensure firms got urgent help, warning the sector was in a ‘paper thin’ state.
It said yesterday that all companies are looking at downmanning to reduce risk and at deferring non-essential spending.
The industry seemed to be set on the road to recovery from the deep downturn experienced from 2014 to 2017 until the Brent crude price nosedived this month.
The recent fall followed a rift between Saudi Arabia and Russia about how to respond to the impact of the coronavirus on demand.
North Sea in focus as fall in crude price gathers pace
Brent crude fell to a 17 year low of less than $25 per barrel last week, against $52/bbl at the start of the month. It sold for $27.27/bbl yesterday afternoon, up $0.12/bbl on the day.Sector watchers said the crude price could hit fresh lows in coming weeks with supplies running well ahead of flagging demand.
The spat between Russia and Saudi Arabia ended a long period of co-operation between the countries in a programme of production curbs that helped the crude price recover after it last fell below $30 per barrel early in 2016.
The renewed oil price fall has already prompted significant players in the North Sea to announce plans for deep cost cuts.
Hurricane Energy has provided further evidence the slump could mean there is much less activity in the wider North Sea in coming years than had been hoped.
Hurricane made big finds West of Shetland, which stoked excitement about what is seen as a frontier area.
Giant West of Shetland field start up provides vindication for oil pioneer
It started production from the giant Lancaster field in June.
In an update on operations Hurricane said it could produce oil from Lancaster at $17/bbl. However, it said operating cash flow from Lancaster will be “materially lower than previously forecasted for an indeterminate period“.
The company added: “Should this change in the market environment persist, it is likely to have a material impact on our capacity to fund capital expenditure.”
Hurricane has been working on plans to develop the Warwick field by linking it to the Lancaster facilities.
The Spirit Energy business owned by Centrica bought into the acreage containing Warwick. Spirit funded a drilling campaign which produced mixed results.
Centrica, which owns Scottish Gas, put its majority stake in Spirit up for sale last year. In February Centrica said it expected to receive initial bids in the current quarter.
It wants to focus on the supply of energy to consumers and businesses.
Rystad predicted there would be significant job losses in the shale sector. It is thought both Saudi Arabia and Russia are prepared to live with a period of low oil prices to help them win market share back from US shale producers.
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