NORTH Sea industry leaders have poured cold water on hopes there could be a recovery in the area next year as they highlighted the scale of the downturn triggered by the coronavirus crisis.

Oil prices have risen strongly in recent weeks amid expectations that effective coronavirus vaccines will be made widely available soon.

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However, Oil and Gas UK (OGUK) said the outlook for firms operating in the North Sea remains clouded with uncertainty as it warned the impact of the coronavirus will be felt for years.

“We are going to see the effects of the pandemic, the consequences of low oil and gas prices endure for some time. 2021 will still be a challenging year for the industry,” said OGUK’s market intelligence manager Ross Dornan.

Brent crude sold for around $47.70 per barrel yesterday, against about $70/bbl in January.

The price has risen from less than $40/bbl since the start of last month. However, Mr Dornan said the North Sea supply chain remains in a “really fragile position”, following big cuts in spending in the area.

He said information monitored by OGUK suggested around 8,000 jobs have been lost in the industry this year.

Earlier this year it warned 30,000 could be shed by the end of 2021.

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Exploration activity has fallen to a record low and firms have shelved investment in the development of new fields and upgrades.

“It’s not going to be a case of just moving activity and investment that might have been planned for 2020 directly into 2021,” said Mr Dornan.

“Some of that will happen, however, we think it will take time to recover the investment decisions … the activities, the wells and everything on the projects that have been deferred from this year. We think it could take two to three years to replace and reposition those activities.”

In its latest Economic Report OGUK underlined the need to try to stimulate exploration activity in order to ensure the UK makes the most of its reserves.

Exploration success will be key to increasing the number of field developments and to ensuring that vital infrastructure in the area is not lost.

OGUK reckons oil and gas will remain an important part of the energy mix for years.

But the organisation reiterated claims that the expertise and experience offered by oil and gas firms meant the industry could play a key role in the transition to a lower carbon energy system.

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“Utilising the expert technical knowledge that exists within the substantial UK oil and gas supply chain is fundamental if we are to evolve toward a lower-carbon future,” said OGUK’s chief executive, Deirde Michie.

The economic report highlights the potential for the oil and gas supply chain to support the development and implementation of technologies such as hydrogen fuel production and carbon, capture, storage and usage.

However, it has not been a big beneficiary of the development of the offshore win industry to date.

Mr Dornan noted: “Much of the development activity has taken place in Scandinavia or in East Asia. What we want to make sure is that in the development of new emerging net zero areas such as carbon capture and storage and hydrogen … as much of that demand is met from UK sources as possible.”

He said that meant building on the North Sea’s oil and gas heritage rather than trying to build a new industry from scratch.

OGUK is in talks with the Government about a North Sea Transition deal, which could be used to help support the development of the supply chain and offset the impact of the reduction in oil and gas work. Mr Dornan said progress is being made in talks about the deal but they are still in their relatively early stages.

The Government is expected to publish an energy White Paper in coming weeks.

In the economic report Oil and Gas UK noted that only six exploration wells have been drilled in the UK North Sea this year “representing record-low activity in the basin”.

The organisation will update estimates of potential job losses and expected investment levels in the first quarter of next year.

Aberdeen & Grampian Chamber of Commerce said last week that around one in five firms working in the North Sea oil and gas sector expect to cut jobs next year amid the fallout from the coronavirus crisis.

The finding came from a survey of chamber members completed before the developers of three coronavirus vaccines published strong test results. The chamber said it was too soon to say how progress on the vaccine front would impact on companies’ plans for next year.