THE oil and gas industry will shed 35,000 jobs in the UK over the next five years as firms slash spending in the North Sea, experts have predicted.
The fall in jobs would have a devastating effect on Scotland, where around half the companies that work in the UK oil and gas sector are based.
However, experts have conceded the recent sharp fall in the oil price could mean the actual impact is even more damaging than the report suggests.
The analysis by Oil & Gas UK, sector skills organisation OPITO and the Department for Business, Innovation & Skills estimated the number of jobs supported by the industry will slump from around 375,000 currently to 340,000 in 2019.
The findings indicate Scotland is facing a challenging few years following a long boom in spending off the country. Firms like BP and Shell have been investing billions of pounds developing giant new fields in areas like West of Shetland.
However, spending is expected to drop rapidly in coming years following completion of these projects.
Stephen Marcos Jones, business development director at Oil & Gas UK, said of the report: "It's a moment to awaken us to the urgent need to reform the (North Sea) basin."
He said the forecast of a 35,000 fall in employment was a worst case scenario based on a statistical model.
However, he conceded that following the sharp fall in the oil price in recent months the impact on jobs could be even worse.
The report is based on official estimates of North Sea spending plans that were prepared in May. Oil prices have plunged by around 40 per cent since June.
Brent crude fell to a five year low of below $70 per barrel last week, down from $115 per barrel in June.
Experts warn that with plentiful supplies of oil from US shale on the market and demand slowing in places like China the price could fall further.
The fall has caused alarm in Aberdeen where many will remember how badly the city was hit in previous oil price slumps such as in the mid 1980s.
The consequences of the price slump could be particularly grim in the North Sea where firms face high operating costs and many fields are ageing.
Oil industry tycoon Sir Ian Wood recently warned the latest oil price fall will result in firms shutting fields in the North Sea.
The report makes clear how cuts in spending cause damage across the UK supply chain. The cuts in activity by firms that operate oil and gas fields will lead to a sharp fall in the amount of work available for the thousands of companies that provide services such as maintaining rigs.
The backlash will be felt by thousands more firms that sell products ranging from food to accountancy services to oil and gas businesses.
Describing the oil and gas sector as vital to Scotland, Energy Minister Fergus Ewing said: "This report highlights the need for the UK Government to continue to put in place measures to sustain long term investment in the UKCS (United Kingdom Continental Shelf)."
The report notes that over the next five years more than 12,000 new entrants will be needed to replace people reaching retirement age.
However, following repeated warnings in recent years that the North Sea industry faces serious skills shortages, the report says the scale of skills shortages is lower than 12-18 months ago. It says this is partly due to the recent slowdown in activity.
The oil and gas industry has been lobbying hard for the Government to cut taxes in the North Sea, claiming firms may abandon the area unless they are given greater incentives.
In last week's Autumn Statement George Osborne said he would cut the headline tax rate by two per cent and consult on a range of measures intended to boost activity.
Chief Secretary to the Treasury, Danny Alexander, said: "This government is helping the sector continue to grow and retain its workforce by cutting taxes, and working with the industry to develop new investment opportunities and support new areas of exploration.
"By supporting on this hugely valuable sector as a source of investment and jobs, this government will ensure that the industry continues to thrive and contribute to the economy."
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