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18 Dec, 2014 12:31

​UK oil industry ‘close to collapse’ as price plunges below $60 per barrel

​UK oil industry ‘close to collapse’ as price plunges below $60 per barrel

Britain’s oil industry is in a “crisis” and may be “close to collapse,” a senior oil industry expert has said, as the UK’s biggest oil and gas companies continue to cut staff and investment and the price of crude slumps.

Speaking to the BBC, Robin Allan, chairman of the independent explorers’ association Brindex, echoed warnings made by other figures in the oil industry in the past month, saying that no new projects in the North Sea would be profitable while oil is being traded at below $60 a barrel.

“It's almost impossible to make money at these oil prices,” Allan said.

“It's close to collapse,” he said. “In terms of new investments – there will be none, everyone is retreating, people are being laid off at most companies this week and in the coming weeks. Budgets for 2015 are being cut by everyone.”

While Allan said such fluctuations had happened before, he also said more oil workers than usual may be axed, particularly contractors rather than full-time employees.

UK oil and gas production has declined since 1999, although investment levels have remained high. While the UK is exploring alternative energy options, investment into oil peaked in 2013, at around £13 billion.

Earlier this year, a study conducted by the UK Department of Business, Innovation & Skills and the oil and gas safety body Optio predicted as many as 35,000 jobs in the sector could be lost within the next five years as oil prices continue to plunge.

AFP Photo

Meanwhile, insolvencies among UK oil and gas companies have trebled this year, with a further £55 billion worth of future oil projects facing cuts or outright cancelation, according to leading UK accountancy firm Moore Stephens.

However, some analysts believe a decline in oil prices may work in the UK’s favor, particularly in comparison to major oil-producing countries such as Russia and Saudi Arabia.

“In essence, an oil price fall acts like a tax cut for the economy, but a particularly favorable one in the sense that the burden of lost revenue is primarily borne by the major oil producers such as the OPEC member countries and Russia,” said John Hawksworth, chief economist for PriceWaterhouseCoopers (PwC).

“Of course, the UK is still a significant oil producer, but we are now a net oil importer, so there should be a net benefit to our economy as a whole, even if there as some losers in the UK oil and gas sector,” he said.

Despite this, new figures commissioned by BBC News showed Britons were using 10 percent less energy than they were five years ago, despite the British economy growing in real terms.

According to the report, much of this is due to increased use of energy-saving domestic appliances, as well as an increased use of green energy sources.