Will Offshore Strikes Affect Energy Prices?

In recent months, the UK's oil and gas industry has been left in a state of uncertainty as offshore workers in the North Sea express their grievances, escalating to the point of looming strike action. This mounting unrest among the workers has cast a dark cloud over the entire sector, with potential consequences for the country's energy market.

The workers in question play a crucial role in extracting fossil fuels from reserves below the North Sea, and any disruption could significantly impact production levels and ripple through the supply chain. Oil and gas companies and the UK government may find themselves in a delicate balancing act to address the concerns of offshore workers while ensuring the stability of the fuel supply.

In this article, we’ll look at the factors at play in the current situation and what they could mean for British businesses and their energy bills.

Why are Workers Unhappy?

The Unite and RMT unions representing the disaffected workers have been negotiating with employers for increased pay.

Over 700 Unite union members recently settled an ongoing dispute with Bilfinger UK by accepting an improved pay deal. Scheduled offshore strike action was postponed in June as workers decided to vote on the improved offer from the offshore engineering firm. Workers felt that their wages and working conditions did not reflect the demanding nature of their jobs in the offshore industry.

Unite general secretary Sharon Graham said: "The deal only came about due to the determination of our members to secure a fairer wage offer demonstrated by their bravery in taking strike action. The deal shows that workers can take on the oil and gas operators and contractors, and win.”

Since then, a further 600 employees of Stork announced their intention to strike on several dates through July 2023, with the support of RMT and Unite. It was later revealed that these plans had been put on hold while union members mull a fresh pay offer from Stork, who took swift action in an attempt to avoid significant disruption. The offshore service provider also committed to backdating the proposed pay rise to January 2023.

How do Strikes Affect the Industry?

Earlier in 2023, industrial action caused disruption across several installations in the North Sea, with some forced to shut down completely.

Approximately 10,000 workers are predicted to be stationed offshore at any given moment, handling various tasks such as maintenance, new projects, and the decommissioning of inactive facilities. The core workforce typically is typically away from British shores for several weeks at a time.

The North Sea is crucial as an essential energy provider to the UK market. As per industry assessments, domestic oil and gas fields contributed 38% of the nation's gas requirements and supplied 75% of its oil demand in 2021. However, this fell by 7% in 2022.

According to Offshore Energies UK, operators are prioritising continuity of oil and gas production despite the unrest. Some suppliers have insisted that their operations remain unaffected. But with the energy market’s dependence on the North Sea supply line, it’s not hard to see how prolonged strike action could have a serious domino effect.

Could Strikes Affect Energy Prices?

Business energy prices in the UK are affected by supply and demand, as with most sectors. In theory, a price increase could occur if production disruptions cause a drop in supply while demand remains constant. We don’t have to look too far into the past to find good examples of this correlation.

As the UK economy recovered from the COVID-19 pandemic, there was a surge in energy demand as businesses re-opened their doors to the public. The supply couldn't keep up, leading to a shortage and subsequent increase in costs in 2021.

This unfortunate situation was compounded following the Russian invasion of Ukraine in early 2022, which further threatened gas supplies and exacerbated the price hike. Electricity prices also escalated due to their correlation with gas. Despite 40% of the UK’s electricity being produced by renewable sources, most of it is combined with gas-generated electricity in the national grid.

Ultimately, widespread and prolonged industrial action could feasibly create a significant fuel supply disruption. This disruption would likely have an impact on the energy market. However, trade unions and contractors are currently working together to avoid this situation and mitigate the risk.

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Sam White