It has been more than three months since the World Health Organization declared COVID-19 as a pandemic, as of this article’s writing. People’s lives across the globe are undergoing massive changes, as governments have imposed varying degrees of lockdowns to control the spread of the deadly novel coronavirus. Various industries are reeling as a result, putting economies in precarious positions not seen since the Great Depression.
The offshore industry is one such sector that COVID-19 has severely affected. In this article we want to talk about how the Coronavirus pandemic has impacted the offshore industry and how it might change the way things are done in the sector post-pandemic.
Travel Restrictions
Perhaps the most apparent problem the offshore industry has faced and will continue to endure is that travel, especially on an international level, is greatly limited. Borders are closed while flights to and from certain countries that the virus has hit the hardest are either completely banned or restricted to only the most essential services and workers. Ports have closed or restricted operations for passenger vessels as well.
Major energy companies have also enforced travel restrictions for their workers. For instance, Equinor suspended helicopter flights to three of its biggest platforms. Maersk Group and Royal Dutch Shell companies stopped crew changeovers. UK Oil and Gas advised those who travelled to high-risk areas to avoid travelling offshore.
Heightened Safety Measures
While offshore platforms and vessels have not fully shut down, stricter measures have been advised to minimise the risk of crews being infected.
Workers are expected to self-quarantine for 14 days before an offshore crew change. They are subject to pre-travel and arrival questionnaires covering their health status and recent travels. Temperature checks are conducted in heliports and during daily operations. Those who do not pass health screenings, whether they show mild flu-like symptoms or have body temperature exceeding 38 degrees celsius, are asked not to join crews.
Cleaning, disinfection and waste disposal have been turned into higher priority tasks. Social distancing is encouraged in common areas, and toolbox talks (TBTs) have been shortened and reduced.
Oil Price Crash and Drop in Demand
The initial economic downturn in China, which is the largest energy consumer in the world, led to a decrease in demand for oil. This, in turn, resulted in an over-supply for fuel and oil products, which subsequently began the price fall.
The Organisation of the Petroleum Exporting Countries (OPEC) held a summit on 6 March to address the issue. The members agreed to cut production by 1.5 million barrels per day while asking Russia to shoulder 500,000 of the cut barrels. Russia did not agree, tanking oil prices even further.
On 9 April, Saudi Arabia and Russia finally came to terms with production cuts, but this came too late, with oil prices hitting their lowest point since the 90s. The biggest news would come later on 20 April when US crude oil prices went below zero for the first time in history.
Now that the rest of the world is currently experiencing economic hardship with businesses shuttering and travel being greatly reduced, energy consumption continues to slow while demand for oil is still low. Over a hundred tankers are out at sea storing tens of millions of barrels of oil, peaking at 160 million barrels back in April and setting a new record.
Job Losses
The high risk of infection, the delays and cancellation of exploration projects and the oil price crash have all contributed to immense offshore job losses in multiple regions.
Oil and Gas UK (OGUK) even predicts as many as 30,000 jobs could be lost throughout the North Sea region due to the effects of the pandemic on the global economy. This major concern is echoed by RMT, a UK-based offshore energy workers’ union, saying tens of thousands of jobs are on the line.
Brazilian service firms have laid off or furloughed employees in the thousands because of the pandemic and the big blows dealt to worldwide oil production and demand. This has stifled one of the growing regions for offshore oil.
Government Support
Offshore energy companies across the world are looking to their respective governments for support through these trying times.
OGUK is in talks with the UK government for a COVID-19 resilience package. US oil and gas companies are set to benefit from a $750 billion (£608 billion) bond buyback programme.
In Russia, state-controlled oil and gas companies are looking at the possibility of having their dividend payments delayed by six months. Meanwhile, an emergency loan package from the Brazilian government may be in the works for the country’s energy sector.
Acceleration of Automation
As companies from sectors including the offshore industry and beyond have had to contend with skeleton staffing and work-from-home operations, there is growing talk of automation spiking. The potential for robots to replace frontline workers to continue production and reduce the expenses of employing humans is in line with a 2018 study of previous recessions where 88% of jobs lost could be automated.
Automation is already rapidly advancing in surveying, inspections and ROV sectors with autonomous and unmanned vehicles, so it should be expected that the rest of the offshore industry will follow suit.
Greater Flexibility to Prepare for Volatility and Vulnerability
The pandemic has been a loud and clear wake-up call for offshore companies. Risk mitigation measures have to be reviewed and refreshed moving forward to prepare for highly volatile times. A vaccine isn’t expected to be available until mid-2021, so restrictions may not be lifted anytime soon, even as some countries are looking to ease up on quarantine orders. It is then imperative that crisis management solutions need to be geared toward short and medium-term changes, especially as conditions ebb and flow from region to region.
The offshore energy sector cannot rely on government bailouts, so to tackle crippling problems like the oil price crash, businesses need to consider new avenues such as collaboration and consolidation.
Potential Shift in Focus to Renewable Energy
Although the renewable energy sector has not been immune to the pandemic, it is still a growth sector with the potential to one day replace the fossil fuel industry entirely. If and how quickly this happens is largely a political question as it is a logistical one.
The expected job losses in oil and gas could mark a turning point for transitioning jobs into renewable energy, adding as much as 42 million jobs by 2050 that would be more resilient in times of economic downturn and recovery. Offshore wind, in particular, could make for a smooth transition for oil and gas workers considering the similarities in supply chain and technologies between the two sectors.
Looking to the Future
Challenges remain for the offshore industry, but important lessons can be learned during this ongoing crisis.
Companies are optimising operations with limited resources, receiving greater investment from governments and are presented with opportunities to drastically alter how business is done for the better. Radical change on the road to recovery may just be the way through such times of uncertainty.
