Up to 50,000 jobs could be at risk in the UK oil and gas industry over the next two years because of the credit crisis and global recession.
This stark warning was delivered yesterday by industry body Oil and Gas UK, although it stressed this was a worst-case scenario.
It said its latest estimate was that capital investment in new and existing fields had fallen from a peak of £5.6billion in 2006 to just under £5billion in 2008, despite the rise in oil prices.
Oil and Gas UK added that scarcity of capital meant new investment was being secured for only the most attractive projects, and it was anticipated that investment would fall to between £3.5billion and £4.5billion in 2009 and could decline to between £2.5billion and £4billion in 2010.
Oil and Gas UK’s economics director, Mike Tholen, speaking as his organisation released its 2008 activity survey, said each £1billion of investment lost might put 20,000 jobs across the industry under threat.
The industry now employs 34,000 in the UK in oil companies and major contractors and a further 230,000 in the supply chain, many of them in Aberdeen and the north-east.
Oil and Gas UK chief executive Malcolm Webb said, however, that the industry was not seeing a complete collapse of spending and he was not sending out a doomsday message.
“There are things the UK Government can do to help,” he said. “We should think Norwegian and tax the industry more favourably, but we’re not asking for handouts or bailouts.”
The industry body said urgent measures were needed to prevent the effects of the global recession, combined with the banking crisis, from dampening new investment in recovering the UK’s still-significant oil and gas reserves.
It said the UK Government could help smaller companies get access to debt financing and help contractors regain normal support from banks on reasonable terms.
Oil and Gas UK’s wish-list also includes accelerated payment of tax allowances to help maintain exploration and material improvements to the tax regime to stimulate additional capital investment, both now and in the longer term.
Mr Webb said there had been constructive talks with the government and the pre-Budget report in November had floated the idea that new investments would be taxed less heavily.
He added: “I’m very hopeful we’ll see something in this year’s Budget to help high-cost developments west of Shetland and of high-pressure, high-temperature fields and smaller fields.”
The 2008 activity survey, which summarises planned expenditure on the UK Continental Shelf by 75 oil and gas companies, reveals that the combination of low oil prices and the freezing of capital markets will have a marked effect on exploration and development activity over the next 12-18 months.
While the province is mature, its remaining reserves of up to 25billion barrels of oil and gas equivalent give it the potential to produce large volumes to help meet the nation’s primary energy needs for decades to come, the survey says.
Mr Tholen said: “Our research shows that if investment could be sustained at around £5billion per annum, the industry could hold production decline at 4% to 5% a year on average.
“However, if investment falls, that decline will again accelerate.”
Meanwhile, the cost of developing and producing UK oil and gas in 2008 rose by 12% compared with 2007, the survey shows.
The break-even oil price for new field investment is now more than $40 a barrel, while the present UK regime taxes production at a marginal rate of 50-75%, it says.
Mr Webb said: “Since the oil price was last in the $40-45-per-barrel range four years ago, the cost base and supplementary charge on corporation tax have both doubled.”
Recommended for you
