Economic Report 2020

ECONOMIC REPORT 2020

Foreword

T he oil and gas sector, and the economy more widely, have experienced enormous disruption during 2020 due to the coronavirus pandemic. As our Economic Report 2020 shows, the sharp fall in global GDP links closely to the drop in global energy demand. It contributed to the triple whammy cited by OGUK earlier this year as companies dealt with the operational impact of COVID-19 alongside volatile and low oil and gas prices. The large reductions in global energy demand resulting from measures to restrict the spread of the virus depressed commodity prices severely, threatening the viability of some operations. During April 2020, Brent crude spot prices fell to their lowest level, in real terms, for more than two decades, and other global benchmarks were affected even more severely, including a period of negative West Texas Intermediate prices in the US market. Gas prices have also been similarly depressed throughout 2020, continuing the trends seen in recent years. As a result, activity levels in terms of exploration, well appraisal and developments have been significantly undermined. Businesses have had to make significant adjustments to the way they work, rescheduling their plans with respect

to both new investment and asset maintenance, whilst continuing to safely provide the UK with secure and affordable energy. By and large the sector has been able to make these day- to-day adjustments successfully. However, the economic impact of the pandemic on companies, particularly in the extensive supply chain, has been severe. Activity levels, revenue and margins continue to be undermined at a time of additional uncertainty as the post-Brexit transition period ends. Despite the many challenges brought by the pandemic, UKCS production is expected to remain around 2019 levels of almost 1.7 million boepd. The avoidance of large disruptions to output is a testament to the professionalism of our members and to the embedded health and safety culture that prevails throughout the industry. OGUK, on behalf of industry, responded to these unique challenges by setting out a three-phase framework plan which seeks to protect jobs and businesses, recover activity and investment, while accelerating the opportunities that the energy transition can bring, both at home and abroad. While the UK economy is expected to see a 11.3 per cent decline in GDP this year, domestic CO 2 emissions

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