LEADING figures from the UK’s oil and gas industry have warned that the sector’s recovery from the Covid-19 pandemic could be even more difficult for companies than the 2014 price crash.

More than half a decade on from a collapse in the price of oil that gutted parts of the UK’s energy industry, explorers in the North Sea hope they can bounce back from another major downturn sparked in part by the coronavirus crisis.

As large parts of the British economy start to re-open as lockdown restrictions are lifted, oil producers are still facing a depressed oil price that has forced the likes of BP and Shell to slash tens of billions of pounds from how they value their assets.

The price of a barrel of Brent crude oil dropped below $19 in April because a global economy that was in lockdown needed a lot less oil. It had already been under pressure as Saudi Arabia and Russia launched a short-lived race to increase their production, which flooded the market with cheap crude.

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The price of Brent has now made up some ground, but at about $42 it is still one-third lower than it was at the start of this year. However, there are big differences between this year’s crash and that of six years ago, said Mike Tholen, sustainability director at Oil and Gas UK, the offshore industry’s trade body.

Since 2014, producers have been tightening their belts by slashing costs, setting them up for today’s lower prices. “Between 2014 and 2019 there was a massive amount of effort to get costs and efficiency back to a place they should have been in,” Tholen said.

“However, while demand for oil kept creeping up after 2014 as the global economy was unaffected, producers are facing a very different prospect today. Reduced demand is placing very different pressures on the sector, forcing some drillers to put off plans to find more oil and gas.

“Immediate activity, whether it’s drilling activity, or project construction work ... is under pressure at the minute,” Tholen explained.

His comments touch on the double challenges that have been worrying North Sea watchers years before Covid-19 came – climate targets and dwindling reserves mean production cannot continue forever.

Oil production will need to drop by around one-third by the end of this decade for the world to be on track with the Paris Agreement on climate change, according to Charlie Kronick at Greenpeace. But any shift away from fossil fuels could trigger significant economic problems, especially around the east coast of Scotland.

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“We’ve got through the most acute part of the medical emergency around Covid-19. Now it’s the economic emergency that’s going to emerge,” Kronick said.

“Realistically I think anybody who is connected to the North Sea value chain, whether they’re offshore workers, or the people who support offshore workers – which is hundreds of thousands of jobs in the UK – is going to have to seriously think about where their future lies.

“That is not a good thing ... it’s terrible. And I think part of the problem is that we as a country, and certainly the industry, have not planned for this transition that is coming.”

The number of people working offshore dropped from around 12,000 to 7000 at the height of the crisis, said Trevor Stapleton, health and safety director for Oil and Gas UK.