As well as around 10,000 direct jobs losses, another 50,000 job cuts in the UK supply chain, and a collapse in investment to find new oil field, the North Sea crude oil price crash has now cut the flow of taxes to the UK Treasury to a trickle.
The price of oil keeps on falling. From a high of nearly $115 a barrel in July 2014, the price of Brent crude has fallen to 13-year lows of less than $30 per barrel.
This has also blocked the flow of N. Sea tax-revenues to the British government, according to Richard Howard, head of energy at the London-based think-tank Policy Exchange.
He said: “The fall in oil and gas prices has had a severe impact on the oil and gas industry. It is estimated that more than 5,500 jobs have already been lost in the North Sea industry, and some fear that total job losses could be three to four times that over the next few years.
“While production levels have remained resilient thus far, investment levels have plummeted, with two thirds of North Sea operators forced to cancel projects. Falling prices could also undermine the viability of the UK’s emerging shale gas industry.
“This has all fed very rapidly through to lower tax revenues for the UK government. Oil and gas receipts are down from £11 billion in 2010 to as little as £130 million in 2015-16 and forecasts for future oil and gas receipts have also been slashed.
“As well as economic effects, the fall in oil and gas prices could have some significant implications for energy and environmental policy.
“Low fossil fuel prices should in theory have a negative impact on investment in low carbon energy sources, as they become relatively more expensive. However the evidence seems to suggest otherwise: global investment in clean energy hit a new record of $329 billion in 2015 – up 3% on the previous year.
“Beneath this headline trend there has been a massive shift in the patterns of investment, with clean energy investment increasingly focused in China, continued growth in the UK, but a significant decline in the rest of Europe.
“One explanation for the resilience in clean energy investment in the UK is that projects are now support by guaranteed or fixed price revenue streams, rather than market prices alone. This is indicative of a wider shift taking place within energy companies in terms of how they generate earnings.
“Analysis of European regulated utilities such as the “Big 6” shows that their earnings exposed to commodity prices have declined sharply, while regulated and contracted earnings (including renewables and networks) are on the increase. This may explain why some major companies in the sector – such as E.On and RWE – are looking to separate their fossil fuel and non-fossil fuel operations.”
The impact on energy and environmental policy is more nuanced, and may take time to materialise fully – particularly given that clean energy investments are increasingly driven by government policy rather than market mechanisms alone.
In summary, the impact of low oil and gas prices is having some significant effects on the UK. Low prices are a boom to consumers, but government finances will feel the strain of reduced oil and gas related receipts, and the knock on effects of job losses.