Low Oil Prices a
Concern for Some
The December edition of Café reported on the falling price of oil and Petrol, which is a
welcome relief for motorists and UK businesses that are seeing falling energy prices.
However, for the UK Oil and Gas industry, the fall in prices represents a potential crisis.
440,000 people are estimated to be working in
the UK Oil and Gas industry. Sector analysts have
estimated that 37,500 jobs are at risk, with some
suggesting that up to 10% of the industry jobs
will be lost if the price of oil does not increase in
the longer term. Jake Molloy, a spokesman for
the RMT union, has stated that there have already
been hundreds of redundancies and delayed
projects in recent months. One US-based oil
group, ConocoPhillips, plans to reduce its
headcount in the UK by 230 out of 1650. This
crisis is expected to continue into the short
term at least, with Professor Alex Kemp, an Oil
Economist at Aberdeen University, forecasting
that oil prices will fall to $50 a barrel in the short
term, from a recent high of $115 a barrel.
With North Sea Oil taxation averaging between
60% to 80% a barrel, the fall in price has also
been financially damaging to the UK Treasury. It
is expected that Treasury revenues will be hit by
several billion pounds as a consequence of the
falling oil and gas prices.
Another casualty of the falling oil price is the
renewable energy sector. In recent years, there
has been a move towards renewable energy
sources, such as solar and wind energy. However,
the falling price of oil makes renewable energy
prohibitively bad value for money. The green
energy sector had been gambling on oil prices
continuing to increase over the next few years
so that it might be able to reclaim some of the
heavy investment into the sector. Most consumers
are price sensitive, with few being willing to pay
a premium on their bills in order to obtain green
energy.
In the Government’s Autumn Statement, delivered
by George Osborne in early December 2014,
the Government reduced the supplementary
tax levy on oil sector firms from 32% to 30%
in an attempt to protect the aging North Sea
Oil Fields. Even such a small reduction of tax
on company profits negatively impacts upon the
Treasury in the region of £2.8 billion per year –
highlighting yet another loser from lower oil
prices.
“ The lower oil price clearly presents
a challenge to this vital industry”
George Osborne
Autumn Statement December 2014
www.bbc.co.uk/news/uk-scotland-north-east-orkney-shetland-30623292
www.theguardian.com/business/2014/dec/19/unions-north-sea-tax-breaks-oil-slump
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