The potential impact of the oil price slump on Scotland was underlined as a leading energy expert warned on Wednesday that North Sea oilfields could be shut down if the oil price fell by just a few more dollars.
The rising sense of crisis about the plummeting price – which has fallen 60% in the last six months – prompted the Scottish government to promise an emergency taskforce to try to preserve jobs in the offshore energy sector.
The oil industry consultancy Wood Mackenzie said that at the current price for Brent blend, of $46 a barrel, some UK production was already failing to break even, and further falls could endanger output.
Robert Plummer, a research analyst with the firm, said that at $50 a barrel oil production was costing more than its value in 17 countries, including the US and UK.
Plummer told Scottish Energy News: “Once the oil price reaches these levels producers have a sometimes complex decision to continue producing, losing money on every barrel produced, or to halt production, which will reduce supply.”
Concern about cutbacks was heightened Wednesday when Shell announced it was scrapping a $6.4bn (£4.2bn) energy project in the Middle East because it was no longer commercial, with oil prices falling to six-year lows.
Plummer said that if oil prices fell to $40, a small but significant part of global supply would become “cash negative”, although some operators would choose to keep producing oil at a loss rather than stop production.
Large companies such as Shell, BP and Chevron, have already spoken of hundreds of job cuts in Aberdeen amid expectations that overall spending across the industry will be slashed by anywhere up to 30% for the coming year.
Carney told MPs on the Treasury select committee that falling oil prices would deal a blow to the Scottish economy but that the decline would be offset by the boost to the wider British economy due to the falling petrol prices. “It is net positive for the UK economy,” he said. “It is a negative shock to the Scottish economy, which is substantially mitigated … by the nature of the economic union that exists.”
He was asked about an estimate suggesting the price slide could wipe £6bn off Scottish GDP, but he said the bank had not calculated the hit to Scotland.
Nicola Sturgeon, Scotland’s first minister, outlined plans to set up a new energy jobs taskforce with the aim of maintaining jobs and mitigating the impact of losses.
Speaking on a flying visit to the oil capital of Aberdeen she said: “The recent drop in the price of a barrel of crude oil, combined with the mismanagement of oil and gas fiscal policy by the UK government, and other challenges facing the industry, pose a threat to a number of jobs.
“The North Sea has made an enormous contribution to the Scottish and UK economies over the last 40 years. It is now vital, in order to prolong the life of the industry beyond 2050 and maximise economic benefits, that the UK government maintains the momentum for fiscal and regulatory change in the oil and gas sector.”
The SNP has faced criticism in recent weeks for its failure to respond to the growing crisis in Scotland’s North Sea oil and gas business.
Labour accused SNP ministers of “sitting on their hands” and failing to tackle the impact of plummeting oil prices, which fell to $115 before the summer.
Scottish Labour’s finance spokeswoman, Jackie Baillie, said: “The falling oil price is the biggest threat to jobs in Scotland since [the close of the steel plant at] Ravenscraig, and the Scottish government has been silent on the issue.”
The chancellor, George Osborne, used the autumn statement last month to cut taxes but the industry has said his initiatives did not go far enough.
Treasury officials have since been asked to work on a wider-ranging package of measures. A recent report for the Department for Business, Innovation and Skills had warned that 35,000 jobs would be at risk over the next five years – and that was largely concluded before the latest oil price slump.
Drilling levels had collapsed in the North Sea even when prices exceeded $100, partly because of rising costs and a hike in taxes by the government three years ago.
With production falling fast over the last 10 years the government requested an industry review by the oil industry figure Sir Ian Wood; it called for a huge shake-up of regulation in the sector.
Shell, in a joint statement with its partner, Qatar Petroleum, about the Ras Laffan petrochemical scheme, said: “The decision came after a careful and thorough evaluation of commercial quotations from EPC [engineering, procurement and construction] bidders, which showed high capital costs rendering it commercially unfeasible, particularly in the current economic climate prevailing in the energy industry.”
The cutbacks in the oil and gas industry are global. Shell also just unveiled plans to slash 300 jobs at its Albian tar sands project in Alberta, while Suncor, another company in Canada, said it would make 1,000 redundancies.
Carney warned on Wednesday of other financial risks linked to the falling oil price. He said it could lead to defaults on debt repayments by emerging market economies, although he refused to name which ones.
He also pointed to risks in the junk bond markets, which fund US shale exploration, reiterating a point made in the Bank of England’s twice yearly update on risks to the financial system published last month.
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