The Price War Could Kill The UK's Oil Industry

The UK’s oil and gas industry has called on the government to help the sector as it faces three separate challenges, that could see production plummet.

Oil and Gas UK (OGUK) highlighted coronavirus, gas prices being halved and the sinking oil price as threats to the industry.

Boss Deirdre Michie highlighted the need for key skills in the sector to be maintained in the face of uncertainty and requested urgent meetings with ministers to establish a response to coronavirus.

“The offshore oil and gas sector is part of the UK’s critical infrastructure, providing the secure and affordable energy the country needs and is a key contributor to the economy in terms of supporting hundreds of thousands of skilled jobs, businesses and our wider economic contribution,” she said. 

In its new business outlook report, OGUK warned production could fall to the lowest level since 2016.

That’s a third below previous forecasts and could give firms negative cash flow this year.

There could also be a 20-30 percent reduction in capital expenditure across the industry this year.

OGUK said supporting the sector is key to the UK’s future energy supply.

Michie also warned the industry’s supply chain is particularly exposed.

A volatile picture

Natural gas prices have halved in the past year and the oil price is at a 30 year low.

It is currently trading at around $30 a barrel.

This has been caused by the coronavirus and the price war between Saudi Arabia and Russia.

The pandemic has led to wide-ranging travel bans including from the EU to the US.

Several major airlines have either cancelled flights or ran them far below capacity.

This has been at the same time as the oil price war between Russia and Saudi Arabia.

At a meeting earlier this month, OPEC and Russia, known as OPEC+, could not agree with an oil supply strategy.

Related: Is $10 Oil On The Horizon?

Saudi Arabia and its allies including the UAE have dramatically increased oil supply.

“At this time innovative thinking, partnerships and meaningful collaboration will be required to help as many as possible to weather the storm,” said Ross Dornan, OGUK market intelligence manager.

Analysts have suggested this could lead to the price of oil reaching as low as $20 a barrel.

This is because the Saudi strategy is likely to continue for some time.

By CityAM

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