Trade body Oil and Gas UK warned that it could take up to three years to restart many of the projects lost due to the impact of the pandemic and commodity price downturn

North Sea oil rig

The UK oil and gas industry already set targets earlier this year to halve its greenhouse gas emissions from its operations by 2030 (Credit: Geograph.org.uk/Simon Johnston)

A North Sea transition deal is “critical” to the sector’s recovery from the coronavirus pandemic.

That is according to a report by trade body Oil and Gas UK (OGUK), which warned that it could take up to three years to restart many of the projects lost due to the impact of the pandemic and commodity price downturn.

OGUK’s Autumn Snapshot found that low sentiment in the outlook of companies continues into 2021, reflecting high levels of uncertainty in the market and reinforcing challenges brought on by Covid-19 are “likely to persist”.

Its analysis reinforces that a North Sea transition deal for this sector is “essential” in meeting the need for secure, affordable energy to be produced with fewer emissions and to position the UK as a “leader in developing low-carbon solutions”.

 

North Sea transition deal critical to help “build back better”

OGUK’s market intelligence manager Ross Dornan said that new projects and investments are “crucial” to providing secure energy, sustaining supply chain capabilities, and ensuring the UK is viewed as a “good place for these companies to anchor their resources”.

“As our Autumn Snapshot shows, it is estimated that companies could continue to take a conservative approach in 2021, reflecting the ongoing challenges of the coronavirus pandemic and the wider economic downturn,” he added.

“Securing a North Sea transition deal for this changing industry is critical in ensuring the sector can use its essential skills to help build back better, providing many of the net-zero carbon emissions solutions required for the future.

“At the same time, OGUK’s Recovery Group continues to help shape the sector’s recovery as it takes steps to support the energy transition.

“The current fragile position of many areas of the supply chain means that this future contribution cannot be taken for granted. Industry needs this support now if it is going to be able to deliver later.”

 

Production levels have remained “relatively strong” throughout 2020

Despite the operational difficulties currently being faced, OGUK’s report said the industry is continuing to safely deliver secure and affordable energy, with production levels having remained “relatively strong” throughout the year.

But it added there has been a “slight reduction” of 2.5% so far this year, which is about 3% down on the 2019 full year daily average. This could be expected to recover in Q4 to be closer in line with 2019 levels.

Other indicators show UK gas demand fell by 16% in Q2 of this year compared with the same period in 2019, and drilling activity levels are on their way to becoming the lowest since the early 1970s after 54 wells were spudded this year.

But only six exploration wells have been spudded so far in 2020 and it is possible that there will be no further exploration drilling this year, according to OGUK.

The average day ahead UK National Balancing Point (NBP) gas prices in the first 10 months of 2020 was 21.61 pence per therm (ppth), 38% lower than the average for the same period in 2019.

OGUK’s report notes that brent crude averaged just under $41 per barrel of oil (bbl) across the first 10 months of this year, which is $23 per bbl less than the 2019 average and prices at the end of October were at a four-month low of $37 per bbl, with market expectations anticipating the price will “take time to recover”.

It estimates that investors could continue to take a “conservative approach” in 2021, reflecting the ongoing challenges.

OGUK claims that increasing activity, investment levels, and progress made by the trade body’s recovery group will be “vital in providing new opportunities for the supply chain” as the industry navigates the transition to a low-carbon future.