2016 is proving to be another difficult year for North Sea Oil. In March, former chairman of energy services company Wood Group, Sir Ian Wood, said the oil and gas companies located in the UK’s North Sea region could let go of a further 45,000 employees in 2016. 65,000 jobs have already been lost in the sector since the oil price collapsed from a high of $115 in 2014 to $30 a barrel.
Against falling prices, oil production continues to rise globally, led in part by Russian, Saudi, and U.S. producers. However, while all producers face the question of sustainability, producers in the UK face a great many other challenges as well. Crude oil output in the UK has fallen 25 percent in the past 5 years and more than 60 percent since 2000, with North Sea producers seeing some of the biggest declines, losing nearly 70 percent of output in the last 15 years and 40 percent in the last five. Related: Russia And Saudi Arabia Locked In Relentless Fight Over China's Oil Market
A decline in oil processing has led to a decrease in profits for oil and gas companies, which have in turn tried to slash their costs through job cuts. With layoffs at their most rampant since 2004 the UK and Scottish governments have been drawn in to pouring more than £500m of extra investment into Aberdeen to help it cope with the economic impact of the collapse in global oil prices.
Ministers from both Scottish and UK governments signed a “city deal” in January promising £250m from the UK government to be spent on energy research, infrastructure and upgrading the city’s harbour, with a further £254m from the Scottish government to improve rail links, roads, housing and broadband services in the Aberdeen area. Related: Venezuela’s Electricity Blackout Could Cut Off Oil Production
Aberdeen is synonymous with the North Sea Oil industry, and it is here in Scotland’s ‘Dallas of the North’ that the impact of the oil price fallout is being felt the most. Hundreds of workers in the oil industry are being laid off every week by producers, drillers and service companies which in turn is hurting local businesses, from estate agents, to hoteliers and taxi drivers.
Redundancies are made worse by the fact that the cost of living in Aberdeen is still high. It is a city where wages have often been higher than the UK average, a place that boasts the highest concentration of millionaires in the UK, and before the crash, an unemployment rate of just 2 percent.
Spiralling inequality in the years preceding the fall in oil price has laid bare the cliff edge that Aberdeen has been balancing on for so long. In December the number of people claiming out of work benefits in the north-east of Scotland increased by 72 percent. Dependence on food bank services in the city has also seen a sharp rise in stark contrast to the way things were just a few short months before. Related: Can Oil Continue To Rally Like This?
As the industry continues to falter, a large majority of UK oil and gas workers are now considering looking for work abroad. A survey by recruitment group Oil and Gas People found that more than 70 percent of North Sea workers would consider moving overseas, where they believe they will find better job security and conditions, with higher wages also stated as a main reason for looking abroad. A move that doesn’t come without new risks and could be costly in itself without first acquiring the proper safety qualifications and insurance cover.
Despite the inevitable decline in North Sea production, the future for the UK oil and gas supply chain remains vibrant due to a number of strengths. As recently as last week Scottish energy services company Wood Group announced a $150 million deal to help support key operations in the North Sea. The deal, an extension of a contract with Nexen, a subsidiary of China National Offshore Oil Corp, means that 190 jobs will be retained in the region. This lifeline is hopefully the beginning of the recovery for the North Sea oil industry with companies still willing to invest despite crude oil prices still about 60 percent below peak levels two years ago.
By Chris Smith for Oilprice.com
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