Increasing incidence of labour strike action in the UK and Norwegian offshore infrastructure raises the risk to the timely completion of project timelines as well as the longer term investment attractiveness of the region. Unresolved labour disputes raise the risk of disruption to project timelines. Further striking and powerful active labour unions raises risk to investment attractiveness over the medium term despite localised disruption, overall crude price impact is muted over the past month, the UK and Norwegian offshore sector has been hit by several instances of industrial action, culminating in strikes and outages at oil and gas fields in both countries. Disputes from rig and offshore services workers in the North Sea range from wage reviews to changes in working schedules. In both markets, the presence of trade unions is strong, with a history of dispute. Over the past month three fields in the UK North Sea, Alwyn, Dunbar and Elgin temporarily halted operations, whilst in Norway, the Knarr field was also shut briefly over wage and pension disputes. Further strike action is planned over the summer and into the Autumn. The increasing scale and repetition of labour strikes in the North Sea raises operational risks to both the timelines of new project developments and to the longer-term investment attractiveness of operations in the region. Previously, the two years of significant industry downturn hit the offshore labour market hard, as companies rapidly cut costs and jobs in the face of tanking oil prices. With oil prices now recovering, workers are beginning to push for a reflective increase in wages as well as a re-scheduling of unpopular offshore working times. If compromise cannot be met between labour unions and companies, there is a risk that escalating strike action will begin to affect new project developments. Furthermore, there is a risk that companies looking to pursue further investments in the UK offshore will be dissuaded or delay investment decisions whilst faced with an increasingly disruptive workforce. Specific project developments may face increasing downside risk to timely completion should labour disruption escalate. Specifically, workers operating on Equinor’s Mariner oil field have already undertaken strike action, with more planned for the autumn. Mariner is a heavy oilfield east of the Shetland Islands that is due to start production in the second half of 2018 with a target plateau output of 55,000 barrels per day (b/d). The field represents the tail-end of a dwindling project pipeline in the UK offshore. Added uncertainty from an increasingly volatile operational and labour situation has the potential to exacerbate risks to exploration levels. A severe deficit in exploratory activity within the UK Continental Shelf will continue to place significant strain on the long-term production potential of the basin, despite incremental progress being made into sanctioning new projects. The North Sea continues to suffer from chronically low exploration levels, which adds significant downside to production post-2020. The ephemeral nature of the strikes so far has limited the wider price impact on crude benchmarks. The fields involved in strike action so far – namely Alwyn, Dunbar and Elgin – have a combined production capacity of around 70,000b/d, which whilst not insignificant, will not have a large impact on prices. However, in a now much tighter global market, should delays or outages intensify, there is potential for short term upside price movement.
Published: 02-08-2018