This article is more than 5 months old

This article is more than 5 months old

The North Sea oil and gas industry is in a “paper-thin” position as global oil markets plummet towards 18-year lows amid the UK’s economic emergency, according to a report.

An industry trade body said investment in the ageing oil basin, which supports about 250,000 jobs in the UK, was expected to slump by almost a third because of the market collapse.

Large oil companies are expected to axe their spending plans to weather the latest market rout, which threatens to halve the revenue from the barrels of oil they produce.

This could cause oil-drilling activity to fall to levels last seen during the 2016 oil market crash, and slash earnings for the engineering companies that provide oilfield services to big producers.

Global oil markets have recorded their most dramatic price collapse in a generation as oil states continue to produce more than the world can use despite the economic slowdown triggered by the coronavirus.

The pandemic may have already slowed work on offshore rigs after the industry trade body, Oil and Gas UK (OGUK), called for a ban on rig workers travelling to offshore oil platforms if they have returned from “hotspot” countries affected by the virus in the previous 14 days to help safeguard staff.

Deirdre Michie, the chief executive of OGUK, said the latest oil price collapse, “coming so soon after one of the worst downturns in our history”, has left the UK’s oil industry “in a paper-thin position”.

The price slump follows a steady decline in global gas prices which have halved over the last twelve months due to higher US shale activity, dealing a double blow to the North Sea’s oil and gas producers.

Michie said urgent action was needed to safeguard the North Sea’s ability to help meet the UK’s energy needs, and invest in low-carbon technologies to help create a carbon neutral economy in the future.

“We’re already working with our members to understand the challenges businesses are facing in these unique and extremely worrying times,” she said.

The OGUK report says the financial contagion triggered by historically low oil prices will threaten North Sea jobs, shrink its economic contribution and undermine energy security.

Ross Dornan, the author of the report, said: “The first week of March saw the most dramatic fall in oil price in almost 30 years and it remains uncertain as to how the market is going to evolve in the coming months as the coronavirus impact increases each day.”

“Alongside this, the gas price has more than halved in the last 12 months, and we face a situation where production revenues are set to be almost 50 percent lower than they were two years ago despite the same level of output.”

The oil and gas market collapse has wiped billions from the value of UK companies, and could threaten the long-term survival of weaker firms .

Premier Oil and Enquest, which have heavy debts and a large proportion of their activities in the North Sea, have lost about three-quarters of their market value since January. Many of the biggest North Sea oil producers – including Chrysaor, Siccar Point and Neptune Energy – are not listed on the London Stock Exchange.

North Sea oil producers were able to adapt to the previous downturn by cutting costs and improving efficiency to survive at market prices well below $100 a barrel, but smaller oilfield service companies have struggled to follow suit.

Dornan said the North Sea supply chain had not yet seen much recovery from the previous downturn and warned that it did not have the capacity “to absorb much more pain”.