Struggling North Sea industry “not at the bottom”

Scotland’s beleaguered oil and gas industry is not yet “at the bottom” with another grim year ahead and more job losses expected as firms continue to cut costs, MSPs have been warned.

Picture: PA
Picture: PA

And the impact of the downturn is beginning to “ripple out” into the wider North-east economy, industry chiefs have said.

But there are grounds for optimism in the longer term as fresh oil fields come on stream next year and the global price of oil is poised to recover.

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Holyrood’s economy is staging an inquiry into the impact of the global price crash on the North Sea which has resulted in an estimated 65,000 UK job losses. The global price now stands at less then $50 barrel compared with more than $100 in the Summer of last year.

James Bream, Research and Policy Director, Aberdeen and Grampian, Chamber of Commerce told MSPs today: “The year ahead is going to be extremely tough.”

He added: “We’re now starting to see this impact ripple out and its a question of how long does this softening go on.

“We don’t know that, but what we do know is that it will continue through 2016 and we forecast more redundancies.”

But while the past year has seen a “hard and sharp” reaction which resulted in the estimated 60,000-plus staff losses, the coming year is likely to see a “slowing” in the rate of lay-offs.

Mr Bream warned: “We’re not at the bottom in terms of the reduction in employment, that’s for sure.”

The impact on the wider North-east economy is beginning to take its toll, he added, with a “significant softening” of the office market. Hotels are seeing a “significant fall” in occupancy from 80% to 66%, while room rates are down from £100 to £75. The housing market is also suffering with just 73% of homes coming to market selling compared with 88% last year, while car dealers say their order books are empty for the year ahead. The number of jobs being posted with recruitment firms has also halved.

Mike Tholen, Economics Director, Oil & Gas UK, said companies are cutting costs because of the “duress” they are experience as a result of the falling oil price.

“Inevitably there will be further job losses as the outlook remains much lower than anticipated, even in Spring of this year,” he said.

But Mr Tholen insisted that production levels are poised to increase by 8-10% next year after rising investment since 2010, with a “lot of activity” in fields west of Shetland.

“Despite the inevitable gloom about what’s going on, production is improving, that is responding to investment, operating efficiencies are getting better so even in down times, we are doing better where we can,” he said.

“There are still things going on. It’s not a completely empty order book and its not a completely empty industry.”