North Sea oil set to be part of the fabric of Scotland’s economy for years to come
Scotland is in the midst of an energy revolution. Our offshore oil and gas industry may be 50 years old, but it builds on a heritage of steam and coal and is now looking to work alongside renewable energy.
Technological change, population growth and changing consumer needs have not only fuelled the emergence of new sources of energy, they have dramatically transformed the way our offshore oil and gas industry operates too.
Far from being a stodgy plate of mince and tatties, those on the periphery of our colossal industry would do well to consider it today as an artisan burger, finessed over time and unrecognisable to our grandparents.
UK Government figures estimate that by 2035, oil and gas will continue to provide two-thirds of the UK’S energy needs. This comes as global hunger for energy is unabated, set to rise by 30 per cent.
Essential for security of supply, supporting hundreds of thousands of jobs and contributing billions to the economy, the offshore oil and gas industry remains an important part of the fabric of Scotland’s economy.
That wider social contribution is also evidenced by cold hard facts. Scotland’s economy has always done better when we do well.
The country needs oil and gas to ensure its energy resilience – diversity is essential even as part of a low-carbon future. We recognise our role to meet that need in an ever more efficient and greener way.
As we continue to diversify into other energy sources, we see our supply chain working right across the energy spectrum. In a cyclical industry like ours, that makes the whole economy more resilient and Scotland a more attractive place to invest in. With a strong offshore oil and gas industry, we can stand proud as an energy nation and the heritage it offers. Emerging from one of the most testing downturns in our history, it is an industry at a crossroads.
Exploration activity in pursuit of untapped resources is expected to be the lowest since 1965. This record low drilling activity, coupled with a squeeze on the supply chain, shows that challenges remain. These challenges are a threat to industry’s ability to effectively service an increase in activity.
Yet, our Economic Report 2018 shows that the years of hard work are beginning to bear fruit and the UK Continental Shelf is now a more attractive investment proposition.
Reduced costs, competitive fiscal terms, improved operational performance and more stable oil and gas prices are laying the ground for an improved landscape. With that, all being well, should come new activity and fresh business for our hard-pressed supply chain.
As a mature basin, companies are having to manage an everincreasing profile of risks and uncertainties – not least trying to tap into ever trickier waters. Equinor’s (formerly Statoil) recent acquisition of a share in the Rosebank field shows how companies are willing to push the envelope, whilst recognising the attractiveness of the basin.
One of the largest undeveloped fields in the UK Continental Shelf, the Rosebank development lies in more than 1,000 metres of water. It’s estimated it will take £4-5 billion in investment to develop the 300 million barrels in remote waters west of the Shetlands. At a time when oil prices are beginning to increase, it underlines the case for tax certainty. With so many other risks to manage in a mature basin, tax uncertainty is the extra straw which could break the camel’s back.
Projects like Rosebank show that we are doing exciting stuff, seeking to develop new fields in some of the most hostile waters in the world.
We’re beginning to see activity step up and this needs to feed through into improving conditions for our supply chain. A recent publication for the Centre for Cities positioned Aberdeen amongst the top 30 cities in the UK for the number of new start-ups.
The stable conditions we are beginning to enjoy are needed if we’re to secure fresh investment in a globally competitive market. It ensures that even as a mature basin, the UK Continental Shelf can punch above its weight.
We’re confident that the industry will contribute more money to the Exchequer in this year than last, based on current oil price and future trends, adding to the £350bn contribution to the UK economy since 1970.
This doesn’t mean the tax regime isn’t working. It means that it is.
History shows that for every one pound invested by the sector itself, industry then returns a pound in production taxes over time.
The industry has truly come of age. Total’s Glendronach discovery, the largest gas find in a decade, was announced in recent weeks. New companies are entering the North Sea with fresh skills and approaches and will be part of the fabric of Scotland’s economy for years to come. All of this whilst industry pays its share of decommissioning costs and looks to develop new opportunities.
There’s an old joke that, regardless of where you are in the world, where there’s oil, you’ll always find a Scot. As we look to the future, we’re confident that wherever you go globally you’ll find even more Scots working in the energy industry.
Our skills, infrastructure, engineering capabilities and people ensure we are best placed to drive the energy revolution globally.
The third age of energy is not set in stone. We should be in no doubt of the hard work and foresight required by industry, governments and regulators to steer many moving parts in the right direction. Deirdre Michie is CEO of Oil & Gas UK