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'Perfect storm' of oil price and COVID-19 brings uncertainty, says industry body Subsea UK

15 April 2020

Opinion piece by Neil Gordon, CEO, Subsea UK

We are truly in the eye of a perfect storm. The double whammy of coronavirus and the oil price collapse, just when the oil and gas industry was starting to recover, is going to be incredibly challenging to weather.

While the talks last week between the OPEC+ alliance and G20 nations has resulted in the oil price rise up from an 18-year low of around $20 to $33 a barrel, many analysts believe this will only help to buoy prices in the short-term. With demand for oil and gas likely to remain low throughout this global crisis, the over-supply reserves will drive the price down again impeding an ongoing, lasting recovery.

The cancellation or deferral of projects, many of which had just come back onstream after the downturn, was inevitable as E&P companies slash capital expenditure.

If the lock-down situation begins to ease in the next few weeks, the North Sea may be in a position to withstand the short-term damage. However, the main concern is ensuring that the supply chain is able cope when activity resumes and projects come back onstream.

This backlog may stretch the already weakened supply chain to breaking point.

Businesses across all sectors are fighting for survival. Many oil and gas supply chain companies, who were only starting to recover after the downturn, with little or no cash reserves and significant debt, are simply not going to be able to stay afloat. The Government’s business loans and job retention scheme may be a case of too little, too late for those in precarious positions.

Oil and gas has been designated a critical industry, much of its workforce key to ensuring that we keep the oil and gas flowing that, in turn, keeps the lights on, powering our homes and our hospitals. But this requires a robust supply chain and the five long, hard years of the downturn, have taken their toll on the supply chain’s resilience.

As an industry body, Subsea UK must provide leadership and value to subsea companies throughout this uncertain period. The former is difficult with so little clarity around the measures in place to support businesses and the uncertainty over the length of this lock-down and the ultimate damage it will have on the economy. Fortunately, delivering value to our members, is more achievable as it’s within our control. We’re currently improving various products and initiatives to deliver relevant support to member companies at this time. We’re also developing on-line platforms for running workshops and events so that our members can stay connected and benefit from shared experiences. We’re working closely with other bodies, including OGUK, to seek more clarity on available support and funding, and to make sure our members’ concerns are being heard at the highest levels of Government.

To this end, we asked members to tell us their most pressing areas of concern. Initial feedback shows that these are, unsurprisingly, staffing, cashflow, projects being cancelled or deferred and lack of clarity around Government measures and guidance.

With the supply chain largely shutting down, companies are unsure when they’ll get paid, but also concerned about delays impacting on their ability to meet their contractual obligations.

The job retention scheme does not allow for a reduction in hours, but the drop off in activity means companies are finding it challenging to balance current resourcing and retention of staff.

Greater clarity is needed on whether UK companies can operate in workshops and factories, as well as travelling to go offshore.

Furthermore, we’re working with relevant organisations and the Government to share and facilitate opportunities where subsea firms can use their expertise and technology to assist in the fight against COVID19. The subsea industry has wide-ranging products and manufacturing capabilities which may be required, including oxygen for saturation diving, breathing apparatus, life support equipment, valves and control systems. One of our members, JFD has already announced a new revolutionary respiratory ventilator that can be used to treat COVID19 patients in hospital or pre-clinical care.

There is no doubt that our world, not just our industry, is going to be fundamentally different when we get out onto the other side of this global crisis.

As an industry, we need to start reflecting on how these changes are going to affect our business models, our workforce, our relevance, our ability to meet demand and our long-term sustainability.

Neil Gordon, CEO, Subsea UK

'Perfect storm' of oil price and COVID-19 brings uncertainty, says industry body Subsea UK