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Covid-19: a turning point for UK jobs

Paul de Leeuw is director of RGU's Energy Transition Institute
Paul de Leeuw is director of RGU's Energy Transition Institute

It has been another eventful couple of weeks in the global energy sector. The COVID-19 situation continues to create havoc across the world, as countries deal  with the fall-out of the health crisis and  associated economic impact.

With around half of the world’s population still in either full or partial lockdown, it is no surprise that the COVID-19 crisis continues to have a material impact on the global oil and gas markets. Worldwide oil demand this year is expected to fall by up to 8% (or almost 3 billion barrels), equivalent to almost seven times the UK’s annual oil production. This is likely to be the largest global annual demand reduction on record.

However, as countries emerge from the lockdown, global oil demand is expected to increase significantly, especially in the G20 leading economies. Last week, the International Energy Agency (IEA) and OPEC forecast global oil demand to be back to over 95 million barrels per day by the end of 2020 (subject to any second COVID wave), compared to around 98 million barrels per day at the beginning of this year.

The combination of increasing demand and the extension of the existing OPEC+ production cuts agreed in early June continue to have a positive impact on the oil price sentiment. The Brent oil price has moved from a low of around $20 per barrel in April to around $42 at the time of writing. Although price volatility is likely to be the name of the game in the near term, the direction of travel will be  welcome to the global oil and gas sector.

It is no surprise that the COVID-19 fall-out and the associated economic volatility has materially undermined the confidence for new investment in the industry.  Globally, analysts forecast that capital investment in the upstream energy sector is expected to be lower by up to 30% in 2020, with a similar impact expected in 2021.

Based on recent company announcements, the UK is very much a microcosm of the global situation. The capital and operating cost reductions announced by UK oil and gas companies are already reducing activity and will continue to do so over the next 18-24 months, which in turn will lower the demand for people in the sector. How big the impact on actual jobs will be depends on which economic recovery scenario actually plays out and what else is done to accelerate activity.

Robert Gordon University (RGU) analysis indicates that if we see a ‘Nike swoosh’ shape recovery, up to 1 in 10 of the sector’s UK jobs could be lost in the next few years. If we see a more severe and prolonged ‘L’ shape recovery and any material delay in large scale energy transition activities, the RGU analysis estimates that over time up to 1 in 4 of the UK jobs in the sector could go. With around 150,000 people directly and indirectly employed in the industry and 90% of them working in the supply chain, it should be no surprise that this area will bear the brunt of any job losses.

This estimate contrasts starkly to the pre-COVID outlook where around 1 in 200 of the working population in the UK, circa 1 in 25 in Scotland and roughly 1 in 5 in the North East of Scotland were directly or indirectly employed in the oil and gas industry.

Against this backdrop, it is encouraging to see the drive and determination of  the industry and government to support the sector, its jobs and its supply chain. There is shared  commitment to delivering  a new transformational sector deal, acting as a catalyst to ‘Roadmap 2035 – a Blueprint for net-zero’, as well as a sustained focus on new technology and innovation. Moreover the  £62 million investment from the Scottish Government is a welcome and early contribution to activities supporting the green recovery and the acceleration of energy transition activities to sustain as many of the high value and high skilled jobs as possible.

The UK is uniquely positioned to lead on the global energy transition. With global emissions expected to reduce by  circa 8% this year due to COVID-19, there is a real opportunity for governments around the world to put climate change and energy transition at the heart of their economic recovery plans.

The greater (and greener) the challenge, the greater the opportunity. Therefore, we have a collective responsibility to ensure that the post-COVID recovery period acts to stimulate new economic activity and protect jobs in this sector, for today and to ensure they are still here to deliver the energy transition tomorrow.

Paul de Leeuw is director of the Energy Transition Institute at Robert Gordon University

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