Coronavirus: UK offshore projects may take up to three years to resume

The leading representative body for the UK offshore industry has warned that it could take up to three years to restart many of the projects lost due to the Covid-19 pandemic, and the price downturn.

The warning comes in Oil and Gas UK's autumn snapshot, which provides a business outlook for the third quarter of 2020.

The report finds that low sentiment in the outlook of companies continues into 2021, reflecting high levels of uncertainty in the market and reinforcing that challenges brought on by Covid-19 are likely to persist.

However, despite the operational difficulties being faced, production levels have remained relatively strong throughout the year.

Ross Dornan, OGUK's market intelligence manager, said: "New projects and investments are crucial to providing secure energy, sustaining supply chain capabilities, and ensuring the UK is viewed as a good place for these companies to anchor their resources.

"As our autumn snapshot shows, it is estimated that companies could continue to take a conservative approach in 2021, reflecting the ongoing challenges of the coronavirus pandemic and the wider economic downturn.

"Securing a North Sea transition deal for this changing industry is critical in ensuring the sector can use its essential skills to help build back better, providing many of the net-zero carbon emissions solutions required for the future.

"At the same time, OGUK’s recovery group continues to help shape the sector’s recovery as it takes steps to support the energy transition.

"The current fragile position of many areas of the supply chain means that this future contribution cannot be taken for granted. Industry needs this support now if it is going to be able to deliver later."

Other indicators show UK gas demand fell by 16 per cent in Q2 compared with the same period in 2019, and drilling activity levels are on their way to becoming the lowest since the early 1970s.

Increasing activity, investment levels, and progress made by OGUK’s recovery group will be vital in providing new opportunities for the supply chain as the industry navigates the transition to a low-carbon future.

Some of the key findings were:

• Brent crude averaged just under $41/bbl across the first 10 months of 2020. This is $23/bbl less than the 2019 average and prices at the end of October were at a four-month low ($37/bbl). Market expectations are than price will take time to recover.
• The average day ahead NBP gas prices in the first 10 months of 2020 was 21.61 pence/therm (p/th), 38 per cent lower than the average for the same period in 2019.
• UK gas demand fell by 16 per cent in Q2 compared with the same period in 2019.
• OGUK members indicate low sentiment levels.
• Companies outline little change in their current outlook for 2021.
• Production has remained relatively strong, however shows a slight reduction of 2.5 per cent so far this year and is around 3 per cent lower than the 2019 full year daily average. This could be expected to recover in Q4 closer to in line with 2019 levels.
• Fifty-four wells were spudded in the first 10 months of 2020, meaning the year is now almost certain to see the lowest total levels of drilling activity since the early 1970s.
• Only six exploration wells have been spudded so far and it is possible that there will be no further exploration drilling this year.
• Estimated that investors could continue to take a conservative approach in 2021, reflecting the ongoing challenges.
• Increasing activity and investment levels will be vital in providing new opportunities for the supply chain.
• OGUK anticipates that it could take 2-3 years to re-phase and recover the capital activity lost from 2020.