Coronavirus: 30,000 jobs could be lost in UK oil and gas industry

Edmund HeaphyFinance and news reporter
Yahoo Finance UK
An employee walks along an oil platform on the North Sea, about 45 miles east of the Aberdeen. (Andy Buchanan/AFP via Getty Images)
An employee walks along an oil platform on the North Sea, about 45 miles east of the Aberdeen. (Andy Buchanan/AFP via Getty Images)

Up to 30,000 jobs could be lost in the UK’s offshore oil and gas industry as a result of the coronavirus pandemic, a leading representative body warned on Tuesday.

OGUK, the industry’s main trade association, said that a “dramatic reduction” in revenue raised serious concerns about the ability of some firms to survive the downturn.

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The body said that the downturn was likely to be more severe than that seen in the wake of the 2015 oil price crash, which threatened the future of the North Sea oilfields.

Noting that many areas of the supply chain were “increasingly fragile,” OGUK said that revenues and margins across the sector could fall by as much as 30%.

“Although there is still a significant degree of uncertainty in estimates affecting the next 12 to 18 months, based on company feedback, OGUK currently anticipates that the level of direct and indirect jobs supported by the industry could contract by up to 30,000 during this period,” it said.

READ MORE: European markets rise as oil traders fret about storage

Earlier this month, futures for West Texas Intermediate (CL=F) fell into negative territory for the first time ever, as traders who had no intention of actually taking delivery of oil rushed to offload their contracts.

OGUK said on Tuesday (April 28) that all UK exploration and production companies and 93% of supply chain firms were reporting a worse or significantly worse outlook for 2020, compared to the beginning of the year.

Analysts have warned that global oil storage capacity will quickly reach saturation point as the pandemic continues to push demand for the commodity lower.

With most of the world on lockdown and travel heavily restricted, demand for fuel has tumbled by as much as 30% in recent weeks.

More than 160 million barrels of oil are now being stored at sea, as refineries, storage facilities, and pipelines across the world reach capacity.

OGUK believes that capital expenditure in the UK’s oil and gas industry in 2020 could fall to as low as £3.5bn, which would be the lowest spending since 2000 and among the lowest since the early 1970s.

READ MORE: Don’t expect oil prices to recover just yet, analyst warns

Operating expenditure, meanwhile, could fall by as much as 20% compared to expectations at the beginning of the year, to as low as £6bn ($7.4bn).

Drilling activity could fall 50% compared to 2019 levels, pushing it to record low levels.

Calling for “urgent action” to protect energy security, jobs, and energy regions, OGUK on Tuesday asked governments and regulators to support a three-stage framework for the sector.

“With historic low oil and gas prices coming so soon after one of the most severe downturns our sector has experienced, these findings confirm an especially bleak outlook for the UK’s oil and gas industry,” said OGUK chief executive Deirdre Michie.

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