The UK’s North Sea oil industry is in crisis

The UK’s North Sea oil operations are in recession, and even the recent natural gas boom is unlikely to restore the region to its former glory. With oil demand set to start falling in 2030 and the UK’s green energy potential growing, several oil giants are pulling out of North Sea operations. In 2023, oil production in the UK’s North Sea fell to its lowest level since production first began in the 1970s. Available reserves are shrinking rapidly after decades of intensive drilling. Meanwhile, several oil giants are looking for new oil regions to produce “low-carbon” crude in the coming decades. In addition, the International Energy Agency (IEA) is pushing countries to reduce oil production in favour of greener alternatives, supporting the decarbonisation goals set out in the Paris Agreement.

In the far north-east of Scotland, some 60,000 workers are still supported by the oil and gas industry, underlining the continued reliance on oil revenues and the need for greater diversification in the region. Unions fear that unless the government does more to provide alternative employment opportunities in the region, it could end up in the same situation as coal mining towns in the 1980s and 1990s, with widespread unemployment and economic hardship. Mika Minio-Paluello, policy officer at the Trades Union Congress, said: “This is a bit of a test of the whole idea of ​​a just transition, of what happens when we decarbonise… we simply cannot allow a repeat of what happened to coal workers in the 1980s.”

To avoid the same disaster that followed the closure of coal mines, the UK government now needs to plan for the impending collapse of the North Sea oil industry. This could have the added benefit of supporting the rapid development of the green energy industry, as renewable energy companies in the UK seek skilled workers to support capacity building in the coming decades. Renewable energy companies around the world are complaining about the shortage of skilled workers needed to support the green transition. However, many oil and gas workers are equipped with the skills and knowledge to move into a career in renewables, with the right training.

Environmentalists and labour groups are calling on the UK government to fund a just transition, helping oil and gas workers find jobs in clean energy. This year, more than 60 climate organisations signed an open letter to all party leaders calling for a UK-wide industrial strategy, investment in domestic manufacturing and skills, expansion of publicly owned energy and a revamp of the tax system for the public good. It also calls for a jobs guarantee to ensure all oil and gas workers have the opportunity to find equivalent alternative employment or funded retraining.

North Sea oil production has been in steady decline for several years, but is now doing so at an accelerated rate. In May, oil giant Chevron announced it was selling its 19.4 per cent stake in the Clair field, one of the UK’s largest oil fields, along with all associated assets in the region. Chevron has been operating in the North Sea for more than 55 years, but the oil giant is looking to future-proof its operations and does not see the region as a strategic choice for the future. It is the latest in a series of oil giants, including BP, ConocoPhillips, ExxonMobil and Shell, to scale back operations in the region.

Despite the obvious trend, the Conservative Party continues to support oil and gas, with plans to maximise the exploitation of North Sea reserves. British Prime Minister Rishi Sunak has bucked the global trend by stymying wind farms and other renewable energy projects, while introducing few new oil and gas licences. The government has issued around 400 new licences in six licensing rounds over the past decade, yet the number of jobs directly and indirectly supported by oil and gas has fallen from 441,000 to just 214,000 in that time.

Oil production in the region has fallen from a peak of 3 million barrels a day in 1999 to just 800,000 barrels a day in 2022, and proven oil reserves have fallen from 8.4 billion barrels in 1980 to 2.5 billion barrels in 2020. New projects such as Rosebank – which has faced significant opposition due to environmental concerns – are expected to produce significantly less oil than previous operations in the region. Rosebank is expected to produce just 69,000 barrels a day once it comes online. Lisa Fischer, an expert on energy systems at think tank E3G, explained: “The UK basin is essentially in decline… Keeping it going is like pouring money down the drain.”

Rather than prolonging the decline of the North Sea, investment could be better spent developing the UK’s renewable energy potential and supporting a just transition for oil and gas workers. This would help the UK meet its climate commitments, as well as strengthening energy security, while ensuring that Scotland’s towns do not fall into a depression similar to that which many coal towns have faced in previous decades.

By Felicity Bradstock for Oilprice.com

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