With global oil prices in decline and the UK’s oil reserves in the North Sea dwindling, tensions over pay for those working in the industry are inevitable. Throw in the UK’s existing commitments to decarbonise the economy and you’ve got a conflicting tripartite between boss, worker and the climate – all three kicking in different directions.
Who takes the financial hit of a sector in decline is as much in question as the long-term viability of the industry itself.
Unionised engineers and technicians employed by the Offshore Contractors Association (OCA) have been embroiled in a dispute over pay and working conditions since May 2016. After the last offer from the OCA was rejected by 81 percent of Unite union members and 61 percent of GMB members in March, further contract talks broke down last week resulting in the unions balloting their members for industrial action against employers making a “race to the bottom”.
But is this just another pay fight between employer and employee, the perennial tug between investor and worker, over how profits are distributed across a system? Or is it symbolic of a wider problem the industry will increasingly face?
As it stands, the UK government is doing all it can to ensure that every last drop of oil is squeezed out of the North Sea fields. But such a latency period can’t last forever. The question of how to navigate a socially just route out of fossil fuel dependency for those communities whose livelihoods have relied on it for generations remains open, and is only set to widen as countries act on climate laws (which have already been set) by weaning themselves off oil.
In the UK and elsewhere, the issue is playing out in a familiar fashion — through a union-instigated strike.
The OCA represents nine large contracting companies and a cohort of smaller firms with a combined total of over 20,000 employees on the UK Continental Shelf (UKCS) where the offshore drilling takes place. Technicians, from material coordinators to pipe fitters and scaffolders, carry out repair and maintenance work in rotating offshore shifts of around three weeks alongside a great gamut of others employed by separate contractors to keep the rigs drilling.
The OCA’s original offer was for a proportion of the workforce to have a pay increase of between 0.5 and one percent per year. But the industry has already suffered huge redundancies and pay cuts in recent years, so Unite and GMB are pushing for a deal more in line with inflation which currently sits at 2.3 percent but with some estimating it could rise to over three percent next year.
“We’re just looking for the contractors, but also for the oil companies who pay them, to play fair,” Unite regional officer John Boland told DeSmog UK. “To give up a wee bit of their profits to get, not a huge pay increase, but to get a reasonable one.”
Each side of the souring negotiation has made accusations of obstinacy. Last week the OCA said it was “extremely disappointed that the trade unions appear unwilling to engage on the issues which are so important to their members.” Boland, meanwhile, told DeSmog UK that the OCA sent none of its negotiators to last week’s meeting, with representatives only able to recast earlier offers already rejected.
A strike, which both Unite and the GMB are expecting to go ahead, would likely take place later in the summer and would cause most offshore operations to grind to a halt.
“Industrial action will only serve to make investment in the North Sea less attractive and jeopardise the long-term future of the industry,” the OCA said in a statement.
This perceived need to keep the North Sea appetising for investors makes sense in terms of the government’s policy to maximise recovery from the UK‘s fields for years to come, but makes less sense if you consider its pledge to reduce carbon emissions by 57 percent by 2030 compared to 1990 levels.
And while oil being left alone under the North Sea may be good news for the climate, allowing it to happen without planning for the employment fallout is bad news for workers and the economy.
Just Another Fight for Pay?
Heavy industries are not unfamiliar with battles between employer and employee over wages. But this dispute comes at a time when the end is in sight for oil in the North Sea — due to both long term climate policies and short term market forces — and a slow exodus has already begun.
Figures on direct employment from oil and gas in the UK vary, but they unanimously show that the workforce is decreasing. According to industry body UK Oil and Gas, numbers fell from 41,700 in 2014 to 34,000 last year, with around two-thirds of companies now with fewer staff than they had at the end of 2015.
“One company went from over 5,000 to under 1,200 in the past few years,” Boland said. “In some instances workers have had up to 40 percent of their wages cut. I know another member had lost about £20,000 in the last 2 years off his wages.”
The first strike in the North Sea in almost 30 years took place between Unite and RMT union members last year following a proposed 30 percent pay cut by oil facilities company Wood Group — one of the nine large members of the OCA. Following a series of stoppages affecting seven oil platforms over the summer, members eventual accepted a reduced wage cut in September.
As oil is currently trading at around $50 per barrel, the industry is clearly less lucrative than its giddy heyday only a few years ago of over $100 per barrel. But whether this justifies the cuts is central to the pay disagreement.
The Wood Group — embroiled both in last year’s strike and the current ballot under the OCA agreement — had a 22.8 percent fall in pre-tax profit from 2015 to 2016, down to $363 million. One of its executive directors took home a base salary of £600,000, up from £468,000 the previous year, alongside a bonus of £320,000.
For another OCA member, AMEC Foster Wheeler, trading profit for 2016 fell to £318m from £374m in 2015. Despite the downturn, these are big profit margins that are unlikely to persuade workers that companies can’t afford their wage demands.
There is international precedent for strikes. Phil Knox from Norwegian union Industri Energi told DeSmog UK that industrial action by Norwegian offshore workers has been in discussion since 2012. Norwegian oil fields are generally younger than their UK neighbours and have a longer life ahead of them, but the oil price has had similarly damaging impacts on each industry.
“In these past few years we’ve not been going in with any silly demands, we’ve just been trying to keep people’s heads above the inflation rates so that they’re still taking home the same money in their pocket,” said Knox.
Last year Norwegian oil service workers went on strike for three weeks after failing to secure a pay increase. The unions won and secured the rise and real wages across Norwegian oil have generally stayed steady.
Oil wages everywhere are high, with varying estimates of the average income of a UK offshore worker usually above £50,000. Many of the problems in Norway have come from increased involvement of international players, Knox said, who have come in and put pressure on the pre-existing wage agreements. Incoming investors see this as an easy target for cost-cutting axes to fall, he added.
In the UK, real wages are falling across the whole economy, which may strengthen employers’ hands in any pay negotiations. They will at least claim their backs are against the wall while profits are dipping and new investment in the North Sea remains low.
To try and abate this and claw back investment in the North Sea the UK government handed out a slew of tax cuts in recent years, including slashing petroleum revenue tax from 35 to zero percent.
Such action may be looked on favourably by the oil and gas industry, but where it leaves the government’s own legally binding climate commitments is less clear.
Hazy Green Future
How to make a “just transition” from a high carbon workforce to a low carbon one is increasingly part of the climate debate. The concept, however, is absent from most conversations among workers and unions who are fighting for the livelihoods they’ve always known.
Until there are reliable and concrete alternative job options for workers to move to, the more immediate threat to their day-to-day lives — paying the bills and having a steady job — will remain the primary concern.
While oil prices remain low, many projects in the North Sea are winding down as companies see the end days of their production as “economically unviable”. This could lead to oil wells being ‘decommissioned’ — permanently plugged with the remaining infrastructure either repurposed or removed.
According to Oil and Gas UK, between 30 and 40 fields are likely to cease production during 2018 and 2019. Decommissioning could be avoided, though, and their lifespan extended by further asset transfers to smaller companies.
The profit margins thrown up by scraping the bottom of oil wells are often too meagre for larger firms, but are seen as a lucrative opportunity for smaller investors. Restructuring doesn’t always sustain the same workforce, however, as fresh money often has less commitment to incumbent workers.
When it comes to redundancies and the harsh working conditions of offshore work, Boland said that workers are most likely to go to their onshore counterparts, where their skills are largely transferrable.
Much of the talk around decommissioning is premature, he added. “In general it will not create a huge amount of jobs, and the majority will be onshore.”
The priorities of fighting climate change and of trade unions battling to keep jobs and fair conditions for their workers may seem at odds. But it’s a dynamic that can be mediated by good government policy.
“Obviously there are environmental issues involved, but most of the workers’ view is to keep some job security for themselves first,” Boland said. “If there’s going to be change, the government’s got to make the jobs.”
For now, the delicate triangulation of needs — maximising profit for oil companies, protecting livelihoods for workers and the transformation of the carbon economy — are all pulling in different directions.
Main image credit: Papagaio-Pirata via Flickr CC BY–SA 2.0