THE crude price slump has left around one in four North Sea fields operating at a loss raising the prospect the industry could shrink dramatically in coming years as firms slash spending experts have warned.

Oil and gas consultancy Wood Mackenzie said the fall in the Brent crude price this month, to a 17-year low, will trigger massive retrenchment in the area. Firms will likely shelve development projects while fields could be shut in prematurely.

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Wood Mackenzie reckons the North Sea industry should be able to survive in the short term as firms feel the benefit of cost-cutting completed in recent years.

However, the scale of remaining activity is likely to be just a fraction of what was expected at the start of the year.

“At current prices, nearly two-thirds of development spend could be wiped from our forecast over the next five years,” said Wood Mackenzie North Sea specialist Neivan Boroujerdi

The forecast came as Royal Dutch Shell and Total, which are big players in the North Sea, announced plans for multi-billion dollar cuts in global spending in response to the turmoil in the oil market.

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

This was triggered by concern about the impact of the Covid-19 coronavirus on demand and the start of a price war between Russia and Saudi Arabia.

Brent crude traded at around $26.50 per barrel yesterday afternoon, down around two per cent on the day. It sold for $52/bbl at the start of the month.

The price slump has posed huge challenges for the North Sea industry, which is still trying to overcome the effects of the deep downturn it went through in the last decade.

Mr Boroujerdi predicted that annual investment in the UK could fall below $1bn (£0.85bn) as early as 2024. Oil and gas firms invested around £5.5bn in North Sea projects last year.

“The threat of stranded assets is real – we estimate nearly 6 billion barrels of economically viable resources could be left in the ground,” he said.

A further 11bn barrels of potentially commercial reserves could be forgotten about.

Edinburgh-based Wood Mackenzie warned the North Sea supply chain will come under renewed pressure as firms that operate fields look to cut costs.

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Mr Boroujerdi said as firms looked to ensure they had a sustainable future “the quickest win is to reduce operational expenditure”.

However, he warned that an excessive focus on cost-cutting could backfire.

“Longer term, investment is required to increase production and reduce unit costs. If the industry goes into harvest mode, a premature end is inevitable,” said Mr Boroujeridi.

He noted that 95% of UK North Sea production could be profitable if Brent crude sells for $30/bbl.

Firms cut operating costs in the North Sea significantly and increased efficiency in response to the fall in the crude price from $115/bbl in 2014 to less than $30/bbl early in 2016.

North Sea heavyweight to slash spending as crude price fall leaves sector in crisis 

The price rallied after the Opec+ alliance of major exporters agreed to curb output to support the market. The pact fell part earlier this month after Russia and Saudi Arabia disagreed about how to response to the impact of Covid-19 on demand.

North Sea industry body Oil & Gas UK has called for urgent help for the sector, noting pressure on the supply chain.

Shell said it plans to cut global operating costs by $3-4 billion annually over the next 12 months compared to 2019 level.

It will cut capital spending on new assets to $20bn or below for 2020 from a planned $25bn.

The company has decided to suspend its $25bn share buyback programme following the completion of the current $1bn tranche.

“The combination of steeply falling oil demand and rapidly increasing supply may be unique, but Shell has weathered market volatility many times in the past,” said chief executive Ben van Beurden in a statement. This made no mention of dividends.

French oil giant Total said it would cut capital spending by $3bn and operating costs by an extra $0.5bn. It has also suspended share buybacks.