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Collapse in oil's market price is good for people living in Britain but not for those offshore

The collapse in the market price of oil is unequivocally good news for most people living in Britain but offshore it has created havoc.

The UK continental shelf is in steady decline, it has been since 1999 when North Sea oil and gas production peaked. The North Sea is not the "pot of gold" it once was but the working assumption has been that there is enough gas and oil left to sustain many thousands of jobs for the next 30 - 40 years.

Last summer the SNP tried to persuade the people of Scotland that its North Sea inheritance would guarantee the future prosperity of an independent Scotland. Back then oil was $115 a barrel, today it stands at $50. The economics of the industry have changed completely, for now at least.

Oil and Gas UK believes between 15 - 24 billion barrelsof recoverable oil remains below the North Sea. The question is how much of that can be profitably extracted.

The North Sea is a mature field, the "easy" oil is gone. The cost of bringing oil to the surface is going up and now the market price of oil has slumped.

Companies have responded by cutting costs. Premier Oil, Cairn Energy, ConocoPhillips, Shell and now BP have all laid staff off. Yesterday Tullow warned it may have to do the same. Just before Christmas Wood Group cut the pay of contractors and froze employee wages.

In places the alarm has been overdone. BP makes it clear it is still committed to its North Sea operations and sees "a long term future for our business here".

BP is shedding 300 jobs, it will still employ 3,200 people at its North Sea base and 11,000 elsewhere in the UK.

This morning BG Group announced a gas project in its West Franklin field is about to go into production - a reminder that last year saw record investment by companies in North Sea production.

What happens next depends, of course, on what happens to the price of oil, or at least the assumptions companies make about what will happen to the price of oil.

There are reasons to believe the slump may be temporary. One of the factors driving the price down is the scale of shale oil production in the US, shale oil fields decline much more rapidly than conventional fields, supply and demand may realign quickly.

In the meantime the spotlight is on tax. As it stands UK oil and gas producers pay between 60% and 80% of their profits to the Treasury, depending on the age of the field. Most other companies pay 20%. The industry warns this situation is no longer justifiable. It wants immediate tax cuts to "save jobs". That is a difficult pitch to resist.

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