Holyrood energy MPs hear latest N. Sea oil forecast: Grim at first, brightening later

North Sea oil workers helmetsHolyrood MPs on the Scottish Parliament’s Energy and Enterprise Committee have concluded taking oral evidence into their inquiry into ‘Future Prospects for Oil and Gas in Scotland’.

The MSPs have now gone into private session to assess the evidence gathered and to consider their report.

But if the answers supplied by Aberdeen Chamber of Commerce and by the trade association Oil and Gas UK are anything to go by, the report will conclude that the future prospects for oil and gas in Scotland are grim – at least in the near future.

Faced with a 60% dive in the wholesale price of benchmark Brent crude oil, operators have slashed investment and exploration budgets – meaning the pipeline of new fields and new jobs – will be diminished in future.

And the downturn offshore is also hitting the onshore Aberdeen economy hard.

James Bream, Research Director, Aberdeen and Grampian Chamber of Commerce, told MSPs that:

  • Operators have cut their workforces by around 14%
  • 8,000 jobs have been lost in the supply chain
  • Aberdeen hotel occupancy rates have fallen from 80% to around 60%
  • Hotel prices have fallen by around 25% from £100 per night to £75 per night,
  • Residential house sales are falling and
  • Local recruitment agencies are seeing a fall-off in the number of vacancies they handle

He added: “We’re not even at the bottom of the <economic> curve and the forecast is for more <job> redundancies in 2016.

Deirdre Michie, Chief Executive, Oil and Gas UK (the industry trade association) added: “The year ahead will be extremely tough. These are very challenging times and tough decisions will have to be made.

“With a 60% reduction in revenues <from the fall in crude oil prices> the industry has to respond across the sector to this. Our members are looking to reduce costs where they can – but without compromising on safety.”

In reply to a question from Labour MSP Johann Lamont about the possible adverse effects of new and longer on-off shift rotas on worker well-being and health and safety at work, Michie said: “Rotas are robustly assessed against HSE guidelines – it is not an unsafe thing to do.”

In reply to another question from Lamont about meetings between Oil and Gas UK and trade unions, Michie replied: “We meet regularly with trade unions on an ongoing basis…but perhaps not as regularly as we should”.

On the positive side, Michie said that decommissioning work on the North Sea fleet of ageing production rigs is an ‘opportunity for the industry to become a centre of global excellence’.

“But,” she added, “we need to get the balance right between exploration and decommissioning and our focus is very much on Maximising Economic Recovery.

“The UK oil and gas industry has fostered innovation, supported energy security and skilled employment and generated significant economic benefits across the country for the last 50 years. 
“While the industry has benefitted from strong investment over recent years, the future is less certain with severe cost inflation and the extended period of low oil prices together putting enormous pressure on the industry.”

MER – Maximising Economic Recovery – was also top of the ‘to-do’ list for Dr. Andy Samuel, Chief Executive of the Oil and Gas Authority (OGA).

Apart from the ‘hard’ technical skills, operators will increasingly need ‘soft’ collaboration and co-operation skills for MER. Dr Samuel told MSPs:

“For us, getting <oil> operators to work together is a no-brainer. Standardisation of practices and procedures is massive – and true collaboration is a major opportunity.

“One silver lining in the current cloud is that the oil price slump will encourage MER collaboration and standardisation and I am confident costs and efficiency is an area we can transform.

“We also need to get the offshore service companies more involved – and further up the decision-making tree. I frequently hear examples of where service companies could make substantial contributions to cost-reduction if they had been involved earlier in the process by the operators.

“Service companies can create greater innovation by working more in partnership rather than simply being a long supply-chain provider.”

Oil and gas offshore service companies will not be compelled by law to collaborate to achieve MER in the forthcoming Energy Act – but the oil exploration and operating companies will.

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Meanwhile, DNV GL Norway is inviting industry players to take part in two Joint Industry Projects  to help the industry work more efficiently while maintaining safety.

The first JIP will reduce uncertainty in tensile testing results and the associated costs of inaccuracies and delays, while the second will help operators save time and money in adapting to new industry requirements.

For more information:

Standardization of Flattened-strap Tensile Testing of Line Pipe
For more information, please contact:
Project Manager: Melissa Gould
Senior Engineer, Welding Technology
DNV GL – Oil & Gas
Tel: +1 281 396 1855
E-mail: Melissa.Gould@dnvgl.com

Development of Industry Best Practice for Girth Weld Repairs
For more information, please contact:
Project Manager: Brad Etheridge
Senior Engineer, Welding Technology
DNV GL – Oil & Gas
Tel: +1 614 761 6996
E-mail: Brad.Etheridge@dnvgl.com

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