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Energy Insights: Energy News: Union leaders, industry combine to say: save our oil future

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Union leaders, industry combine to say: save our oil future



Exclusive By Judith Duffy

UNION and industry representatives have called for the UK Government to cut taxes to help save the North Sea oil industry following the crisis triggered by a dramatic slump in the price of a barrel of crude.

There are warnings that the oil industry in Scotland could disappear the same way the coal industry did under Thatcher unless swift action is taken.

Dire warnings of tens of thousands of job losses and the sector being "close to collapse" were issued last week in the wake of the price of a barrel of oil nearly halving in just a few months to around $60 a barrel.

Now union leaders and the business organisation representing the offshore industry say the UK Government must intervene to ensure the long-term survival of the industry.

Jake Molloy, regional organiser for the RMT, said the crisis meant the oil industry was riven with uncertainty and the threat of redundancies.

But he said a wider concern was that the oil and gas industry was on the "precipice" and could face the same fate as Britain's vanished coal ­industry if action was not taken to help the sector.

"We are keen that the big picture is looked at - as this isn't just about ­workers' jobs," he said. "We have seen what happened with the coal mining industry, and the same fate could await the oil and gas industry if we don't manage it properly.

"So we are keen to see government intervention to address that, as if we don't address that then it is serious for everyone."

Molloy said there was a public perception of oil companies as "mega-rich" and making billions - and he acknowledged they had made a lot of money in recent years.

But he said oil taxes imposed by the Conservatives and the previous Labour government meant the UK was unable to compete effectively with other oil-producing nations.

"I don't want to suggest oil and gas companies shouldn't be paying their fair share of tax - they absolutely should - but you can't have a situation where they are hiking up tax during the good times and not providing redress during the difficult times," he said.

"This is no longer just about money and jobs, it is about sustaining production of our natural resources.

"If we don't manage it then you will see the same thing happen to oil and gas as we witnessed with the coal mining industry.

"We are sitting on millions upon millions of tonnes of coal, and yet we are importing millions of tonnes of coal. You cannot have that situation with oil and gas surely."

Last week, Chief Secretary to the Treasury Danny Alexander admitted the crisis facing the industry in the wake of the plunge in the oil price was "deeply worrying". He suggested recently announced tax incentives, including a 2p cut in the tax on profits and a new allowance on investments, would help encourage exploration.

Alexander also said discussions on any further measures to be included in next year's Budget had not yet taken place, but pledged that "taxes are going to keep coming down in the North Sea".

Mike Tholen, economics director for industry body Oil & Gas UK, said it had been working closely with the Treasury since the spring to examine how to make the tax regime more competitive for business. He added it was keen to make sure action was taken to make the industry attractive, particularly in terms of encouraging investment and exploration.

"What the oil price drop has done is to push everything into high definition. It was difficult before, but it looks an awful lot more difficult again at current prices and it has really brought everything into sharp contrast," he said.

"We can't run a business at $110 (a barrel) costs in a $60 (a barrel) world, nor can we tolerate $110 tax rates in a $60 world. So both sides have got to adjust."

Tholen said that without any action being taken it could be the "end of the road" for the North Sea industry.

But he added: "The oil price has rocketed down and that is causing some real angst but we can get through it."

Oil companies say they are adjusting to the market conditions, and investment is still going on in the North Sea.

A spokesman for BP said: "The North Sea is an important region for BP, and with our partners we're currently investing in a number of major projects, including the large Clair Ridge project and the redevelopment of the Schiehallion field.

"However, it has been well signalled around the industry that costs have risen and we must also respond to toughening market conditions. We are working to make our business more efficient to ensure it is both ­competitive and able to meet the challenges of the future."

A Shell spokesman said: "The industry has been tackling escalating costs associated with North Sea operations for some time. The current market volatility has made the need to strip costs out of the system more urgent."

Last week, Robin Allan, chairman of the independent explorers' association Brindex and director of Premier Oil, said the industry was "close to collapse".

But oil industry veteran Sir Ian Wood later described the warnings as "well over the top and far too dramatic".

Wood, who had previously predicted a wave of job losses in the North Sea over the next 18 months, said conditions would begin to recover next year.

Willie Wallace, regional officer for offshore workers with Unite, said the Government could help by offering more assistance to companies involved in exploration, which would have a positive impact on their contractors, such as drillers.

He said the crisis was impacting on jobs, but argued the idea the industry was close to collapse was a "knee-jerk reaction".

"I think the industry by nature is cyclical and when the price picks up again, we will see the industry pick up again," he said.

"There is still a lot of oil to get."

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