FIFTY years after the discovery of the giant Forties field by BP confirmed the North Sea’s status as a major oil and gas basin the area is at a pivotal point.
The plunge in oil and gas prices triggered by the coronavirus crisis has left the North Sea industry in turmoil, amid warnings that 30,000 jobs could be at risk, one in five of the total.
READ MORE: Scale of North Sea challenge underlined by ratings agency
BP boss Bernard Looney said recently that demand may never recover from the shock.
Factor in the drive to reduce carbon emissions to net zero and some think an industry that exists to produce oil and gas for combustion may be living on borrowed time.
The UK Government recently launched a review of the offshore licensing regime.
Champions of the industry insist oil and gas firms can bounce back and play a key part in the effort to slow climate change. However, the challenges facing the North Sea appear to be acute.
Firms have announced plans to shut down some fields and to slash investment in new developments while exploration budgets have been cut to the bone.
Social distancing requirements have caused huge complications.
Experts at Aberdeen university have warned that billions of barrels of North Sea resources could be left undeveloped.
Even cheerleaders for the industry admit they can’t predict how long the downturn will last given huge uncertainty about how the pandemic will impact on the economy.
Oil & Gas UK chief executive Deidre Michie said: “Jobs are being lost, companies will be lost; the degree to which that happens is not clear at the moment.”
Yet some industry watchers seem confident there will be a recovery of sorts, with global demand for energy expected to increase as population numbers and living standard rise. They say oil and gas will have to remain part of the energy mix for decades.
READ MORE: BP's new North Sea chief says area will play big part in new era for energy giant
Malcolm Forbes-Cable of the Wood Mackenzie energy consultancy said: “There are the challenges of net zero but what the UK can do is demonstrate how low emissions barrels can be produced in a mature basin.”
Mr Forbes-Cable noted the latest downturn hit as the North Sea was starting to get its mojo back after the one that started in 2014. However, it may not require a big increase in commodity prices to kick start some sort of recovery.
“If we get north of $50 per barrel you definitely start to see more optimism, more willingness to invest in the basin,” he said.
Brent crude traded at around $40 per barrel yesterday. That compares with $70/bbl in January and less than $16/bbl in April.
Wood Mackenzie experts note projects have been deferred rather than cancelled. But future exploration and development activity will focus on advantaged barrels, in particular where existing infrastructure can be utilised.
However, Oil & Gas UK reckons production could remain above 1 million barrels oil equivalent per day to 2035 and beyond. Production averaged 1.7m boepd last year.
It is also confident that expertise developed operating in the North Sea could help the oil and gas supply chain play a key part in the energy transition.
READ MORE: North Sea clean energy transition could generate 200,000 jobs finds expert report
For example, firms could help develop wind farms and hydrogen fuel sources. Huge amounts of carbon could be stored in depleted North Sea fields.
“I absolutely do believe this industry has a positive future and a contribution to make,” said Ms Michie. “It’s contributing to oil and gas and it’s contributing to the green economy.”
Decommissioning could provide work for some firms.
The big question is how much damage the industry will suffer before oil and gas markets recover, or firms feel a boost from renewables.
Much will depend on what happens in terms of commodity prices and the coronavirus.
North Sea specialist Lucy King at Wood Mackenzie reckons large-scale development projects have been pushed out to the mid-2020s.
The industry is looking for support from the Government through a North Sea Transition Deal that would help firms survive short term challenges and lay the foundations for longer term growth.
Ms Michie declined to give details of the deal under discussion but noted: “It is about jobs, it is about supporting the supply chain and it is about net zero, while contributing to the security of the energy supply.”
She is confident a deal will be agreed before Christmas.
Oil & Gas UK also wants the North Sea industry’s interests to be supported by the Government in the Energy White Paper that it is due to publish.
This could help to persuade firms to invest in the UK sector amid fierce competition from overseas and fears the downturn will accelerate the retreat of some majors from the area.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel