NORTH Sea industry leaders have said the Government must provide urgent help for the oil and gas sector which has been left in a ‘paper thin’ state following the crude price plunge amid the coronavirus crisis.

Oil & Gas UK (OGUK) warned that what it called the most dramatic fall in the oil price in almost 30 years has triggered a crisis in the North Sea that could take a devastating toll on the industry.

The fall left Brent crude trading at a 13 year low of $26 per barrel yesterday afternoon as concern about the outlook for the global economy mounted.

Oil & Gas UK said investment in the North Sea could fall by up to 30 per cent this year with project cancellations in prospect as firms look to save cash to try to help them through tough times.

It reckons the resulting cuts in activity could push some firms in the supply chain over the edge and lead to widespread job losses.

Comment: The costs of the crude price plunge must be shared fairly

The organisation has heard reports that companies have already started to reduce workforce numbers as they gird themselves for what could be a long downturn.

It is concerned that the crisis has struck at a time when many firms are already struggling to overcome the impact of the downturn earlier in the decade.

“Businesses and industries across the UK are facing extraordinary pressures but coming so soon after one of the worst downturns in our history …this sector is now in a paper-thin position,” said Oil & Gas UK chief executive Deirdre Michie.

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Oil & Gas UK wants the Government to ensure that firms can benefit from the measures announced by the Chancellor Rishi Sunak on Tuesday to help businesses cope with the impact of the COVID-19 coronavirus on the economy.

These include £20 billion cash grants and tax breaks for small and medium sized enterprises and a £330bn loan guarantee scheme to support wider business borrowing.

“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,” said Ms Michie.

OGUK market intelligence manager Ross Dornan said the industry had found itself in an increasingly fragile position after the outlook for the industry worsened dramatically in a short period.

The industry has been left reeling following the 50 per cent fall in the crude price this month, which reflects worry about the impact of coronavirus on demand and the start of a price war between Saudi Arabia and Russia.

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Mr Dornan said with oil and gas producers facing a 50% cut in revenues every company in the exploration and production business in the North Sea will take action to save cash.

OGUK reckons this could result in exploration activity falling to a new low while spending on new assets will plummet as projects are cancelled, deferred or delayed.

“This will quickly feed through to our supply chain which in many areas is already in an unsustainable position. Many companies simply will not be able to absorb further reductions.” said Mr Dornan.

He added: “We are likely to see more insolvencies and consolidations in the market in this environment.”

Mr Dornan’s comments highlight the strain that was imposed on the sector in the North Sea as a result of the fall in the crude price from $115/bbl in 2014 to less than $30/bbl early in 2016.

Many firms folded and thousands of jobs were lost across the wider supply chain.

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Brent regained some ground after major exporters including Saudi Arabia and Russia agreed late in 2016 to curb production to support the market.

However, the agreement fell apart this month after the two countries disagreed about how to respond to the impact of coronavirus on demand.

Mr Dornan noted the outlook for prices is very uncertain.

He expects demand to recover in time but supply levels will be heavily influenced by what Saudi Arabia and Russia decide to do.

OGUK wants oil and gas firms to get Government support to help them access cash that will be needed to get them through the expected downturn.

It is also seeking longer term support through a sector deal. This would help maximise the potential of the sector to help secure affordable energy supplies for the UK and to support the transition to a lower carbon economy.

“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,” said Ms Michie.

She added: “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.”

The Rystad energy consultancy has predicted that around 200 oilfield services companies in the UK and Norway, 20 per cent of the total, could go bust as a result of the impact of the coronavirus on activity. It said firms that provide drilling rigs, well services and support for maintenance, modifications and operations work could face challenges.