Coronavirus (COVID-19) has impacted all areas of our lives. It is no surprise, therefore, that it has and will continue to have a significant impact on the oil and gas sector.
The situation we face
The BBC (19th March 2020) reported that the North Sea oil and gas sector is in a “paper-thin position”. A substantial crisis was caused by the drop in the oil price to below $30 a barrel. There is also the continued pressure on cashflow that began with the downturn in 2016, as well as difficulties with the supply chain. In short, we are in a time of unprecedented risk to the sector. This is before we consider the potential impact of possible infections on rigs and the restriction in travel and office closures (Office Technology, March 17th, 2020).
The “perfect storm” (OGUK, March 2020) is exacerbated by the decline in demand. If people stop moving around, with the decline in travel by road, rail, sea, and air, the need for oil and gas-based products will continue to fall significantly. IEA (March 2020) claim that the sector is impacted more severely than others due to this substantial decline for transport fuels. At the time of writing, the IEA was commenting only on the impact on China, without considering the mind-blowing spread across the globe. When commenting on March 9th, 2020 they noted that global oil demand stood at 99.9 million barrels a day, down some 90000 barrels. There had been a hope that oil demand would grow but now IEA predicts that global demand will fall by 730,000 barrels a day.
With events changing so quickly, the accuracy of any data is another area of concern for all.
Why there should be action for the oil and gas sector
Every industry sector is demanding government support. It is no surprise that there has been a unanimous cry from industry leaders for support in maintaining the UK’s critical infrastructure and “providing the secure and affordable energy the country needs” (Deidre Michie, OGUK CEO, March 2020). The role that the sector plays in providing basic utilities to UK households makes it essential that there are measures taken to secure the “skills, experience and infrastructure” in the oil and gas sector. (Deidre Michie, OGUK CEO, March 2020)
The government released a statement to the BBC stating its substantial support of some £330 billion to the British economy. The unprecedented action by the British Government may offer some sense of comfort to the oil and gas sector. However, without specifics, it might not quench the high levels of uncertainty that are dominating all sectors that are impacted by the daily fluctuations of the global markets.
The resilience within the sector
OGUK has convened an industry Pandemic Steering Group who meet regularly to identify and address the challenges faced by the sector. They are particularly focused on the challenges of maintaining offshore operations in times of social distancing, and so increased health and safety concerns. OGUK hopes to share industry-specific advice at regular intervals to help its members understand how they can respond to the pandemic.
If Ex~i Flow can offer any support in this time of uncertainty and challenge, please contact us.