Business Outlook 2020 - Activity and Supply Chain

BUSINESS OUTLOOK 2020: Activity and Supply Chain

Foreword The impact of the Coronavirus around the world is devastating. Quite rightly, the immediate priority is to protect public health. In support, our colleagues in the oil and gas industry continue to help provide the safe, secure supplies of energy the UK needs, working in challenging and often remote circumstances. Withmore thanhalf of theworld’s populationunder some formof lockdown, industrial output has plummeted and energy demand has collapsed, and the economic consequences of COVID-19 are plain to see. It is estimated that the global economy could shrink by 8 per cent this year if lockdown continues through the second quarter. The UK economy is likely to reduce by one-third and unemployment levels could rise to as high as one in ten. The economic impact of the coronavirus pandemic will likely be a legacy felt for decades. Our latest Business Outlook report clearly illustrates the severity of the impact on the UK’s oil and gas industry. The outlook is bleak compared to the picture of steady growth seen only two months ago, before the grip of the pandemic became clear. For an industry just emerging from one of the most prolonged downturns in its history, this is especially concerning. Global oil demand has fallen by almost 30 per cent in a little over twomonths and the Brent price has collapsed by almost 70 per cent since the start of the

year. Alongside this, UK gas prices have fallen to their lowest level for 14 years and are amongst record lows. Operators have down-manned to essential personnel offshore to protect the health of the workforce, and have also cut most discretionary activity in support of this and as a result of low commodity prices. As a result, new activity in the basin has stalled, investment plans have been postponed and major planned shutdowns delayed. Even after the lockdown eases, low commodity prices are likely to endure, slowing any recovery into 2021 and beyond. As our report shows, we are particularly concerned about the ability of the supply chain to absorb more pain. Contracts are already being deferred or cancelled and the longer-term pipeline of work is becoming increasingly uncertain. The collapse in investment will inevitably impact employment. Job cuts have already been announced and we will see many more in the coming months. Our current estimate is that up to 30,000 jobs could be lost over the next 12–18 months, if action to help the sector weather this storm is not successful. Only by concerted action across industry and governments can we begin to mitigate such damage.

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