Britain’s oil and gas industry is in a crisis as dwindling production and low prices are killing off company profits and jobs in the process.
In fact, things are so bad that the number of jobs has fallen at its fastest rate since 2004, according to research released on Thursday by the Aberdeen and Grampian Chamber of Commerce.
The report — which looked at numbers up to September — estimates that the overall number of people employed in the UK oil and gas sector has fallen by a massive 6% this year. On top of this, nearly two thirds, 64%, of all firms said that they had been forced to cut jobs.
Oil and gas contractors don’t expect things to get better any time soon either, and a huge 85% of those surveyed said that they think big job losses will get worse in 2016. Estimates put job losses across the UK oil industry at around 65,000 since 2014. A further 5,000 jobs have been cut since 2014 until now.
Job cuts are being caused by a lethal cocktail of very low commodity prices, and falling production thanks to huge costs in the North Sea area meaning that employers simply can’t afford as many employees. Oil has been hovering at around $50 (£33) per barrel for a while now, and gas prices are at their lowest since 2012.
The cuts are compounded by the fact that the North Sea is one of the most expensive places to produce oil and gas on earth, and while commodity prices have slumped, production costs have not. Production costs in the region are so expensive because the advanced age of many oil and gas fields in the North Sea means that getting the commodities from under sea is far more difficult than elsewhere.
Rising costs and slumping production is also terrible news for the British government, which has seen tax revenues from the oil and gas sector fall by more than 80% in the last four years. Figures released in June showed that the government made £2.1 billion ($3.2 billion) in taxes from the oil and gas industry in 2014-15, down from more than £10 billion ($15 billion) in 2011-12.
The industry is worried about the future
Huge job cuts have added to a general feeling of worry around the industry in the UK, and a massive 79% of all contractors working in North Sea oil and gas are less confident about the future than they were a year ago. This is the lowest level of sentiment since the AGCC start its survey in 2004. Only 1% of those surveyed are more confident than they were last year.
“This is probably the most negative survey we have ever had … there is little to be positive about in the short term,” said Uidean Vass, an oil and gas specialist at law firm Bond Dickinson, which sponsored the survey.
Things may look pretty bleak for UK oil and gas right now, but people in the industry seem to be holding out some hope for the future of fuel production off Britain’s shores.
Vass said in the report “Neither contractors nor operators see the North Sea disappearing. They believe the industry can survive at $50 a barrel and that there will be a price upswing over the next three years with more room for oil company profitability because of enhanced efficiency. Contractors will also benefit from enhanced efficiency. As the old saying goes, ‘What doesn’t kill you makes you stronger’.”
James Bream, the resarch and policy director at AGCC added “if we are not complacent, a long-term future still exists for the sector and players such as the Oil & Gas Authority will have a major role alongside the industry itself.”
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