North Sea tipping point: why job losses are about to accelerate

Britain’s oil and gas sector now stands on a cliff edge as redundancies loom large

For five decades, the UK’s surrounding seas have provided it with the oil to power the country’s transport system and the gas to heat its homes.
In the process, Britain’s oil and gas industry has boosted the economy and poured £400bn of taxes into Treasury coffers, while also generating 120,000 high-paid jobs. However, the sector now stands on a cliff edge and redundancies loom large.
By 2030, experts predict at least 33,000 jobs in the North Sea, and perhaps as many as 60,000, will be gone.
The natural decline of North Sea stocks is playing a crucial role, as around 180 of the UK’s 284 oil and gas fields are due to close down by 2030.
Yet, politics is also key.
The Government’s windfall tax, Labour’s pledge to halt new drilling, and protests by climate activists mean that oil and gas investors are turning away from the UK.
For environmental groups, it marks a major victory as they strive to replace jobs in oil and gas with new roles in renewables – especially offshore wind.
Sadly things are not that simple, says Professor Paul de Leeuw, director of Robert Gordon University’s Energy Transition Institute.
He has spent much of the autumn researching the risks building up in the energy sector, and briefing leading politicians from the main UK parties and the Scottish government.
His conclusion is that the oil and gas industry or, more particularly, the thousands of skilled workers it has created, will be essential to creating the renewable energy systems of the future – and the UK is at risk of losing far too many of them.
“Over 90pc of the UK’s oil and gas workforce possess skills that can be transferred to the offshore renewables sector,” he says. “Retaining the offshore oil and gas supply chain, its workforce and associated skills over the next five years will be crucial.
“But there is currently a limited capacity for the UK offshore renewables sector to accommodate the quantity of skilled oil and gas workers impacted by the predicted decline in the hydrocarbon sector until later this decade.”
What Prof de Leeuw is saying is that allowing bad politics to accelerate, the offshore oil and gas sector’s natural decline will also undermine net zero – wiping out swathes of a workforce best placed to build the energy systems of the future.
The casualties are already mounting. Earlier this year, Harbour Energy, the UK’s largest oil and gas producer, said it was abandoning new oil and gas projects in Britain and announced 350 job cuts.
Linda Cook, Harbour’s chief executive, blamed the UK’s windfall tax, plus Labour’s pledge to remove investment allowances and block future drilling in the North Sea.
Last month, Apache – another major UK offshore operator with more than 630 staff – announced plans to cut 90 more jobs. It said it was “suspending all platform drilling in the North Sea due to the challenging UK fiscal regime and unstable investment climate”.
Contractors are also affected. Offshore Helicopters, which flies workers offshore from Aberdeen, Shetland and Denmark, has announced job cuts linked to fewer workers.
Such losses are already hitting the UK’s energy communities hard. Aberdeen, which in the 1990s was at the heart of the UK’s booming offshore industry, has lost hundreds of jobs.
Martin Jones, partner at UHY Hacker Young, the accountancy group, said Aberdeen was experiencing the lowest increase in disposable household income in the UK with just a 15.8pc rise over the last decade. By comparison, the national average was 40pc.
He says: “Aberdeen’s slow growth in household income growth is entwined with the areas’ ties to the troubled UK oil and gas industry, which has been hit hard by declining North Sea oil and gas production.”
House prices are also falling. The University of Aberdeen Business School’s latest quarterly housing market report shows Aberdeen house prices tumbled by 4.4pc over the last 12 months.
The report said: “Downsizing by some major oil companies in the North Sea, together with rising concern regarding emissions, have all affected confidence.”
Some fear these declines are just the trickle before a flood that could affect many more towns along the UK’s east coast, which boasts high numbers of energy workers.
Prof de Leeuw says that in a worst-case scenario, job losses in the North Sea could hit 60,000 by 2030, while a managed transition will see the oil and gas workforce decline from 120,000 to 87,000.
Why, though, is the UK’s oil and gas production in decline at all? Part of the answer is that its biggest and best oil and gas fields have all been exploited.
Even the biggest reserves, such as the mighty Brent oil field, northeast of Shetland, have been drained. Brent, like many others, is currently being decommissioned, with the platforms cut away and the subsea oil and gas wells filled with cement.
Over the next decade, decommissioning could become a far bigger industry than oil and gas. A spokesman for the North Sea Transition Authority (NSTA) said UK oil production was set to show a compound decline of 6pc a year over the coming decade.
“UK oil production peaked in 1999 and declined rapidly through to 2014, with only a handful of large undeveloped discoveries under active consideration for development, decline is expected to continue, albeit at a slower rate, through to 2050,” says a spokesman.
For gas, the predicted decline is nearly twice as fast. “There are few new developments under consideration and limited exploration prospects so rapid decline is now expected through to 2050,” the NSTA spokesman adds.
For politicians, the biggest battles have been fought over licensing. Claire Coutinho, the Energy Secretary, plans to approve dozens of new exploration and production licences in the coming months.
By contrast, Ed Miliband, her Labour shadow, has pledged to block all new licensing if his party wins power.
But such squabbles, and the political uncertainty they generate, are certain to drive investors away – and may hardly be worth having. The NSTA’s own projections show that UK annual gas production will decline from 34 billion cubic metres (bcm) in 2022 to just 13 billion by 2030 and less than 5 billion by 2040.
New licences might add around 4bcm to those annual totals, which is useful but will be nowhere near enough to offset the decline.
What such new work might do, however, is generate enough new investment to protect jobs in the oil and gas sector while renewables reach full strength.
Katy Heidenreich, a director at Offshore Energies, the trade body for the offshore sector, says that preserving British jobs in the energy sector is the main challenge.
“The retention of the offshore oil and gas supply chain, its workforce and associated skills will be essential,” she said in a recent report. “People working in oil, gas and offshore wind are at the heart of the energy system and will be vital to the success of the transition as it gathers momentum later this decade.”
Currently, the UK has about 150,000 workers in the offshore energy industry, as offshore wind employs around 30,000 people in addition to the 120,000 in oil and gas.
That balance is about to flip with up to 100,000 new jobs likely to be created in the low-carbon sector by 2030 – making it an ideal home for the thousands of workers that face redundancy in the oil and gas sector.
Managed properly, says Prof de Leeuw, a new workforce model will emerge, with jobs concentrated around energy clusters that could see hydrogen production, carbon capture and wind turbine construction in close proximity.
A successful transition will see the UK offshore energy workforce actually increase by 50pc to 225,000 people by 2030, he says. Failure to realise its full potential will see the workforce decline by around 15pc to 130,000 over the same period.
“There is a huge prize up for grabs,” said Prof de Leeuw. “We want to equip decision-makers – whether in government, industry or in individual businesses – with new insight to convert those opportunities into reality.”
But will it happen? The UK’s energy history is littered with failed promises, ranging from Tony Blair’s pledge to create a new generation of nuclear power stations to David Cameron’s Green Deal which was meant to insulate millions of homes – and managed almost none.
Stephen Kerr, Conservative member of the Scottish parliament for central Scotland, whose constituency includes Grangemouth, the refinery that will soon close, says the UK’s oil and gas sector should be protected until green promises come true.
“Those green jobs aren’t there yet in the numbers needed,” he says. “And the jobs that are there are certainly not in the same income bracket as those which are disappearing from the oil and gas sector. So, we need to cut the fantasy and deal with the reality.
“Political leaders who talk about tens of thousands of new green jobs in the future are leading astray a public who have little idea how far in the future they mean.”