Idle North Sea oil rigs point to fresh crisis

Off the coast of the Scottish town of Invergordon, 40 km north of Inverness, ghostly silhouettes of inactive oil rigs dominate the horizon.

The Cromarty Firth, a sheltered body of water leading to the North Sea, became a barometer of the health of the British oil and gas industry after the last oil price crash in 2014, when it turned into something like a drill cemetery.

Now the number of platforms stored in the Cromarty Firth is on the rise again as the North Sea battles a double crisis, which industry veterans admit they have never seen before. A global collapse in demand for oil due to the coronavirus pandemic has been compounded by a price war between Russia and Saudi Arabia.

Sixteen inactive platforms are located in the Cromarty Firth, exceeding the average of 12 recorded in 2016 when the last crisis reached a nadir. Of these, nine still have a small crew on board ready to be deployed if work occurs, but seven are unlikely to leave any time soon. The port of Cromarty Firth is currently negotiating with operators the possibility of storing five others.

Other Scottish ports with close ties to the petroleum industry, such as Dundee, also stock platforms.

We are entering a crisis behind a crisis

“I hate to say it, but the entire North Sea has collapsed again,” said Bob Buskie, managing director of the port of Cromarty Firth. “Once the price drops where it is now. . . Basically, the place stops. “

Although record cuts in global oil supplies were struck last weekend between the group of Opec producing countries and Russia, crude prices are still languishing below $ 30 a barrel, causing problems with more mature marginal basins like the North Sea.

“We are heading for a crisis behind a crisis,” said Jake Molloy, regional organizer for the RMT union in Aberdeen, who estimates that up to 1,500 North Sea workers are undergoing a layoff consultation process , the work of drilling contractors having dropped. clearly.

In 2014, 41,300 people were directly employed by the UK offshore oil and gas industry, but this fell to 35,600 in 2016. By 2018, employment figures had improved to 36,800 , but unions fear that this latest crisis will take a similar heavy toll.

“Once the health crisis is over, we are also entering a massive industrial crisis,” said Molloy, as oil and gas companies move quickly to cut capital spending.

OGUK, a trade agency for the North Sea, expected operators to reduce their investments in up to 30% this year to 4 to 4.5 billion pounds sterling, their income having dropped. She thought that North Sea operators’ cash flows could turn negative this year for only the third time in four decades.

According to OGUK, drilling, which is often among the first activities to be postponed or suspended, should drop by more than a third to record dips, while more mature fields could be decommissioned early. Operators who intended to make final investment decisions this year on major new developments should postpone.

No less than 12 new projects have been announced to receive the green light from investors in 2020. Siccar Point, a company supported by the private equity group Blackstone, and Royal Dutch Shell have deferred until next year, a decision on whether to pursue one of the most eagerly awaited new projects – the Cambo field, 125 km northwest of the Shetland Islands.

Last month, independent oil producer EnQuest decided not to restart production in two mature fields in the North Sea that had been temporarily closed for repair.

Ultimately, industry veterans said the latest crisis could mean that some oil and gas reserves are simply never recovered from the half-century-old basin.

Even before the coronavirus pandemic, questions were asked as to whether the persistence of the North Sea oil and gas industry was compatible with the United Kingdom’s goal of zeroing greenhouse gas emissions. greenhouse by 2050 and if investors and banks, which adopt increasingly stringent measures. environmental policies would continue to support operators in the region.

The industry regulator, the Oil and Gas Authority, estimated in 2018 that 10 to 20 billion barrels of oil equivalent could still be recovered from the North Sea, but Alex Kemp, professor of petroleum economics at the University of Aberdeen, warned that activity levels in the basin were “very sensitive to variations oil prices. “

He last year valued that at the oil price of $ 50 a barrel, 8.7 billion barrels of oil equivalent could be economically recovered by 2050. He planned to publish research on the latest crisis in the coming weeks, but said : “I expect that when we put $ 30 and $ 40 in real terms[into our model]. . . he [the forecast] will be on the low side. “

Source: thakoni.com

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