MATT ABRAHAM TAKES A LOOK AT THE CURRENT OIL AND GAS MARKET AND THE CHALLENGING TIMES AHEAD
Everything passes, Everything changes is a phrase often used when faced with what seems like an insurmountable problem. For us it’s the triple whammy of pressures our industry is tackling with operational disruption due to Covid-19, massive reductions in demand for our product and a globally oversupplied market.
Obviously all of us wish this complex trio of challenges would pass sooner rather than later, as the dramatic changes we’ve experienced since March have led to a fragile outlook for the UK’s offshore oil and gas sector in stark contrast to the optimistic expectations at the start of the year.
We’ve seen significant deferral of activity and there’ll certainly be increased scrutiny within every company of any new investment in the UKCS. In April, OGUK’s survey of its members formed the basis of our Business Outlook: Activity and Supply Chain report revealing an industry anticipating a dramatic reduction in revenue. It sparked concerns about some companies’ ability to survive a downturn likely to be worse than what they’d experienced in 2015.
Revenues and margins across the supply chain are expected to fall by 20-30 per cent, on top of reductions seen during the last downturn. Capital expenditure (CAPEX) is expected to drop to between £3.5bn – £4 bn, the lowest investment since 2000 and reminiscent of the early 1970s.
Companies are under immense pressure and sadly many jobs have been lost or put on hold, having a worrying impact on jobs, companies and the communities they belong to. Yet, in these extraordinarily tough times we still have a massive responsibility to keep the UK running with secure and affordable energy, and our industry continues to employ thousands of people, working both onshore and offshore.
Alongside the key workers like doctors, nurses, supermarket workers, delivery drivers and all those protecting and supporting us at this difficult time, our industry’s key workers are helping to provide the energy we need to heat our homes, power our hospitals, fuel emergency service vehicles, and transport essential supplies.
Supporting this amazing team, ensuring they are safe, healthy and informed now and always is our top priority. Early on, in recognition of the potential impact of coronavirus, OGUK convened the Pandemic Steering Group (PSG). This comprises representatives from across the sector whose task is to identify and address specific issues faced by those maintaining offshore operations as well as communicate with relevant stakeholders and government agencies. Its remit is enabling cross-industry action and co-ordination.
The PSG meets regularly and contributes to OGUK’s Covid-19 webpage – a public resource with information including accommodation and transport provisions for key workers, business financial support options, industry policy and advice and opportunities to volunteer.
The website is linked with the resources provided by safety organisation, Step Change in Safety, a not-for-profit, memberled organisation which aims to make the UKCS the safest oil region in the world. Together Step Change in Safety and OGUK are addressing concerns on the prevention, mitigation and protection against coronavirus on the 150 manned installations across the UKCS and materials include information films for those travelling by helicopter offshore and advice for the substantial onshore workforce.
We’re increasingly focusing on the industry’s medium to long-term future. We welcome the UK Government’s financial support for the economy and continue to have regular dialogue with MPs, MSP, unions and regulators as we work to ensure secure energy supplies. It’s important there’s recognition of our industry’s particular challenges and a broad understanding that activity levels are unlikely to resume as quickly as in some other sectors post-Covid-19.
The two factors driving the fall in prices – the political nature of OPEC and its supply agreements plus the fall in demand due to coronavirus – mean we face a rocky road for some time to come. The government’s furlough scheme will certainly provide short term support for businesses but there is no getting away from the fact that this is another long term challenging period for our industry, coming so soon after the last downturn.
Delivering our industry’s recovery means engaging in open and constructive dialogue. We’ve had impressive turnouts for our online meetings, webinars and virtual engagements with members working together to focus on solutions. We are learning from each other all the time, using new tools to do that and collectively focusing on keeping our industry viable so we can play our key role in the journey towards net-zero.
The future success of our industry is now inextricably linked to the UK ‘s legally binding target to deliver net zero greenhouse gas emissions by 2050. That means doing everything we can to ensure our industry plays its rightful role in the energy transition as outlined in Roadmap 2035: A Blueprint for Net Zero, our industry-wide action plan for the coming decades.
Matt Abraham is OGUK supply chain director. OGUK is the leading representative organisation for the UK offshore oil and gas industry. Its membership comprises oil and gas producers and contractor companies.
For further information please visit: https://oilandgasuk.co.uk/