Downer for drilling in North Sea
Experts say peak of oil demand may already be passed, hastened by virus
Pandemic could doom Europe oil hub as experts say peak may already have passed.
For decades, the oil rigs rising out of the North Sea off Scotland provided Britain with hundreds of thousands of jobs in a thriving industry and billions in tax revenue.
Much of that now seems a memory. The collapse in oil prices from the coronavirus pandemic, coupled with infections aboard the drilling rigs, are imperiling the vast industry that sprawls across the waters off Scotland and Norway.
Oil companies are shelving investments worth billions of dollars. Staffing on the rigs has been cut, partly to reduce costs but also to provide some degree of social distancing on the often crowded platforms, putting those jobs at risk. At least two offshore workers have tested positive for the coronavirus.
“We have gone through commodity swings and cycles of that nature, but this one is different,” said Jim House, chief executive of Neptune Energy, a private equity-backed oil and gas firm with production in both British and Norwegian waters. “We have never seen a world completely shut down,” he added.
More important, though, may be the impact on the future of the North Sea oil and gas industry. Its health depends on finding new undersea fields and bringing them into production, but if prices remain low, as some analysts think likely, that won’t happen.
The price of Brent crude, which was named for a North Sea oil field, has fallen by about 70 percent this year to just over $20 a barrel. Another type of crude, West Texas intermediate, shocked the industry when it fell into a negative price earlier this week.
“There are a lot of undeveloped fields in the North Sea,” said Alexander Kemp, a professor of petroleum economics at the University of Aberdeen in Scotland. At the very low prices seen this year, he said, “a lot of them won’t be viable.”
If so, the vast network of businesses that depend on the industry, from drillers and undersea pipe layers to providers of offshore living quarters known as floatels, could atrophy.
The crash in prices is likely to have wide-reaching implications for tax revenue, employment and the prosperity of oil-dependent cities like Aberdeen. Since the 1960s, the former fishing port, with distinctive granite buildings ringing a busy harbor, has thrived as an oil hub.
The city, with a population of about 200,000, and its surrounding region outpaces both Scotland and Britain overall in metrics like economic output per capita and employment.
Now local leaders say the oil industry’s second steep downturn in six years may accelerate changes already underway. Some workers are relocating to offshore oil projects in places like Brazil or Angola, where their skills are valuable in newer fields. Others are turning to cleaner energy, like offshore wind and hydrogen.
“Everyone accepts there will be a big impact,” said Barney Crockett, a Labour Party politician who serves as lord provost, or mayor, of Aberdeen. “We will definitely see a bigger emphasis on nonfossil energy.”
British waters are still productive, producing 1.7 million barrels a day — three-quarters of Britain’s oil consumption and half its natural gas needs. But veterans of the North Sea oil industry now say that the world that emerges after the lockdowns may be different — less reliant on driving, flying and other habits that stoke the need for oil.
“Demand will come back, but it won’t come back fast,” said Mike Tholen, director of sustainability at Oil and Gas
UK, which represents the North Sea industry. “We may be in an era of having seen peak oil demand,” he added.
Analysts say that governments will likely continue to promote measures to tackle climate change by cutting carbon-dioxide emissions, which means reduced demand for oil.
Already, oil companies are delaying projects that represent the region’s future. Siccar Point — a drilling company backed by Blackstone, the giant fund manager, and Royal Dutch Shell, Europe’s largest oil company — recently delayed what was anticipated to be the British North Sea’s premier project this year: the estimated $3 billion first phase of a field called Cambo.
“It makes sense to hold off final approval until some normality returns to the market,” said Siccar’s chief executive, Jonathan Roger, in a statement. Analysts at Rystad Energy, a consultancy, had estimated that the project would require around 1,000 engineers and technicians.
Projects are being postponed not just for economic reasons but because of worries about safety, analysts say.
Offshore platforms are a focus of unease amid the coronavirus pandemic. Workers are flown out by helicopter and spend two- to three-week shifts on the rigs, sleeping in small rooms sometimes shared with a colleague.
The industry has begun conducting health checks at the heliports and reducing numbers on the platforms. Usually about 11,500 workers are on the platforms at any time; that number has been cut by about 4,000, partly to ease crowding, but workers say it is still not easy to maintain the recommended social distancing rules.
On April 2, a worker who became ill and later tested positive for the coronavirus was flown by helicopter from Clair Ridge, a BP field in waters north of Scotland. BP temporarily halted drilling in order to isolate others. (The worker has since been released from the hospital.)