Will the Coronavirus Pandemic Doom North Sea Oil?

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 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. 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.

“A longer term concern is perhaps jobs will be deemed not necessary,” said Dave Stewart, a senior executive at Wood, an Aberdeen-based energy services company that employs more than 10,000 people in Britain. “At $30 oil, you are not going to see a lot of investment.”

Innes Auchterlonie, co-founder and managing director of Imrrand, which crunches data to help streamline maintenance on offshore platforms, said he is faring well in the most turbulent conditions that the oil industry has seen in decades. Still, two of his contracts for work in the North Sea were recently canceled, and he worries about what may lie ahead for his company, which employs 45 people.

“My fear is how long can we sustain it?” he said, noting that oil companies are even cutting services like his that could save them money. “I know what it’s like when you are hemorrhaging cash,” he added.

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 of 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.

“Crises tend to bring forward trends that were already in place,” said Martijn Rats, an oil analyst at Morgan Stanley, an investment bank.

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 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.

Oil workers “are very concerned about being offshore,” said John Boland, a Scotland regional officer of the Unite union, which represents industry employees.

On April 2, a worker who became ill and later tested positive for 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.)

Neivan Boroujerdi, an analyst at Wood Mackenzie in Edinburgh, said investors are now shying away from oil, especially from British waters, where production costs are relatively high. Companies like Chevron and Conoco Phillips had sold stakes in the area before the latest price collapse.

“The North Sea has a challenge to attract any kind of capital,” Mr. Boroujerdi said.

Operators in Norwegian waters within easy reach of Aberdeen are also slashing costs, but Mr. Boroujerdi said that Norway had more oil and gas left in its fields than Britain. The handful of companies that dominate in this area, led by state-controlled Equinor, would likely try to protect Norwegian investments, cushioning the blow of market turmoil, he said.

Oil and gas was once a major source of tax revenue for Britain, but no longer. Annual tax revenues paid to the British government dwindled from about 11 billion pounds to just over £1 billion last year. Analysts say the industry, facing steep financial losses, may not pay any taxes on production this year.

Sir Ian Wood, who helped establish the North Sea as a vital source of oil, has been trying for several years to prepare the region for the inevitable decline of the industry he helped create.

In the late 1960s, just as drilling began in the region, Mr. Wood, who worked for a family ship repair business, started to service oil equipment. He built the company now called Wood into a global energy contractor and became one of Scotland’s richest residents.

“That should in theory carry on forever if renewable energy is what it is,” he said.

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