RECENT developments have underlined the seriousness of the challenge facing the key North Sea oil and gas industry but may also have fuelled hopes that the shift to a cleaner energy system is set to accelerate.

With giants approving two huge windfarm developments off Scotland talk of a ‘green recovery’ is in the air. The concern, however, must be that this will not be strong or fast enough to create the energy sector jobs the country needs to compensate for the massive damage resulting from the fallout from the coronavirus.

The scale of the problems the North Sea supply chain has been left facing was writ large in an expert analysis of how much oil and gas is likely to be recovered in coming decades.

READ MORE: Billions of barrels of crude to be left untouched in UK as coronavirus hastens 'peak oil'

Energy consultancy Rystad found the amount it would be commercially viable to produce has fallen by around 20 per cent, or three billion barrels, to 12bn as a result of the coronavirus.

The cut in the estimate takes account of the plunge in oil and gas prices that was triggered by the lockdowns imposed to slow the spread of the virus.

Brent has risen from the 18-year low of $15.98 reached in April to around $42/bbl following production cuts by major exporters and the easing of some lockdown measures. However, it sold for around $70/bbl in January.

Demand may not recover to pre-pandemic levels even after lockdowns are fully lifted amid changes in behaviour and the shape of the economy.

Rystad reckons some North Sea fields will be shut down early while existing finds will be left undeveloped. Prospects will be forgotten about.

The implications are grim for the North Sea supply chain which is being hammered already.

Major players such as EnQuest have unveiled plans for deep cuts in spending and for job losses.

Significantly the Rystad study was published days after oil giant BP announced that it planned to slash the value of its exploration portfolio by up to $10bn. The company has reduced its long term price assumptions for Brent crude to $55/bbl from $75/bbl.

READ MORE: Plans for hefty job cuts at BP fuel concern about prospects for North Sea operation

The new management team led by chief executive Bernard Looney has decided a range of prospects BP has been working on may no longer be worth developing.

The cuts reflect the strategic shift Mr Looney has decided the firm must make to help it achieve the ambition to become a net zero business in terms of carbon emissions by 2050.

The firm plans to reduce its dependence on oil and gas while increasing its investment in renewables.

However idealistic Mr Looney’s statements may have been, the shift could also reflect a hard-headed awareness that demand for oil and gas may soon be on a downward trend .

“Could it be peak oil? Possibly,” he told the FT last month.

Environmental campaigners at Greenpeace said the writedowns made by BP suggested it had finally dawned on the firm that the climate emergency is going to make oil worth less. They said BP should train people to move into sustainable jobs in decommissioning oil and gas assets and offshore wind.

In response to the Rystad analysis, Greenpeace said the government should pursue a green recovery that favours public investment in renewable energy and infrastructure.

READ MORE: 'We don't want your money' Shetland protests as SSE presses ahead with UK's biggest windfarm

In that context it was ironic that Rystad’s analysis was published a day after energy giant SSE approved a plan to build the giant Viking windfarm in Shetland. The plan to build the 103-turbine windfarm has been opposed by some locals in Shetland on environmental grounds.

SSE decided to go ahead despite failing to win subsidy support for Viking under the Contracts for Difference programme.

The Perth-based giant presumably expects to be able to generate good long term returns from Viking without CFD backing. However, chief executive Alistair Philips-Davies said it might apply for support in future rounds.

Approval for Viking followed hot on the heels of the announcement by SSE that it would proceed with the huge Seagreen windfarm development off Angus. Total has agreed to pay up to £130m for a majority stake in the project which will involve total investment of £3 billion.

Officials clearly believe there is strong appetite among significant energy industry players to invest in other windfarms.

Earlier this month the Crown Estate Scotland launched the first offshore licensing round in a decade with the prediction it could unlock around £8bn total investment.

READ MORE: First Scottish windfarm licensing round in a decade launched in 'pivotal' move for sector

But before people get too excited by the thought of ScotWind helping to kickstart a recovery for the North Sea supply chain people should remember how long the timescales involved will be.

The first windfarm approved under the round is only expected to start generating power in the late 2020s.

Experience to date gives people other reasons to be cautious about the potential for windfarm projects to provide a big boost to activity in Scotland.

SSE sparked a furore when it revealed the turbines for Seagreen will be made on the Isle of Wight.

Mr Phillips Davies insisted subsequently that the firm had made sure that companies in Scotland shared in its success in the windfarm business. It started producing electricity from the massive Beatrice windfarm off Caithness last year.

But it is significant that firms that apply for acreage under the ScotWind round will be required to submit a supply chain development statement, with information on where work will be completed.

This suggests the Scottish Government is not sure the supply chain is mature enough to capitalise sufficiently on renewables opportunities to help take up the slack left by the contraction of the oil and gas industry.

READ MORE: Scots fund management heavyweight to help lead North Sea oil industry fightback

The Scottish Government recently decided to commit £62 million to a fund established to help ensure the country supports the energy transition and benefits commercially from it.

The Energy Transition Fund is also expected to help the oil and gas industry cope with the problems posed by the fall in commodity prices this year.

The announcement of the fund was greeted positively by industry body Oil & Gas UK.

It was also welcomed by the Aberdeen-based Oil and Gas Technology Centre and Opportunity North East.

Both were formed as the fallout from the crude price plunge from 2014 to 2016 took a toll on the heartlands of the oil and gas industry around Aberdeen.

But with experts at the University of Aberdeen warning that North Sea spending could fall by £10bn annually following the turmoil in the market this year a £62m fund may only provide a sticking plaster for a gaping wound.