Oil barons look ready to cut production
Dec 17 2008 by Andrew Hebden, The Journal
SIX months ago, the growing oil and gas sector was cited as an undoubted strength of the North East economy. But a rapid deterioration in the price of a barrel of oil since June threatens to change all that. Andrew Hebden looks at the changing face of the UK oil and gas industry and talks to the region’s business executive of the year about what it means for his firm.
THE proceedings of a meeting in the western Algerian port of Oran today will be keenly followed by senior officials at many major North East companies.
The 151st extraordinary meeting of the Opec conference takes place amid high expectations that it will sanction cuts to global oil production, triggering a speedy rise in the price of a barrel of oil.
Not long ago the prospect of such a move by the oil producers cartel would have been unthinkable.
Oil prices hit record highs during the summer months, triggering huge increases in the price of petrol for hard-pressed car owners and angry protests about soaring home energy bills.
But every cloud has a silver lining, and the North East’s community of oil and gas businesses were among the beneficiaries of the rising cost of Brent Crude.
The rapid rise of Newcastle pipe manufacturer Wellstream is the most frequently cited example, but it is just one of many success stories.
As well as those working directly in the oil and gas sector, countless engineering businesses in the region also serve those markets, including Journal business of the year Darchem.
The importance of the sector to the region should not be under-estimated. It is estimated that around 5,000 people are already employed in the sector and at the current rate of growth experts say 10,000 staff will be needed by 2015.
But after peaking at around $150 a barrel, Brent Crude has slumped to less than a third of that price.
Industry officials are now pinning their hopes on a cut in production today to push prices back through the $50 a barrel barrier.
The effect on companies in the sector has been stark, as demonstrated by Wellstream’s falling share price, down from a high of £14.72 to just £3 at one stage.
The volatility of oil prices is nothing new, of course, but the causes are complex.
Although speculators and the weakening US dollar were both been blamed for the rising cost of oil, the principal cause was growing demand from the rapidly growing economies of China and India.
That growth has stalled in recent months, however, as consumers in the west have finally started to put away their credit cards.
The collapse in world trade is best illustrated by the Baltic Dry Index, a measure of the shipping movements of raw materials by sea, which has fallen to its lowest level since 1986.
Last week, it also emerged that the cost of hiring a ship to move freight around the world has fallen by 99% in just six months.
The effect on companies in the sector has been stark, as demonstrated by Wellstream’s falling share price, down from a high of £14.72 to just £3 at one stage.
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