OIL & Gas UK’s annual Economic Report is an excellent publication which I make frequent use of throughout the year.
The 2013 edition highlights some very important issues concerning the UK’s North Sea oil and gas industry, which has become a political hot potato in the run up to the referendum on Scottish independence in September 2014.
The three key issues are oil and gas production, capital investment and government tax revenues.
UK oil and gas production peaked many years ago and both have declined substantially in recent years. The latest monthly statistics from the Department of Energy (DECC) show oil production down -11 per cent on last year and gas down -18 per cent.
Production last year was the lowest since 1977.
The OGUK forecasts show increased output in the period to 2017, because of new field developments, but the downward trend will almost certainly resume then, albeit at lower rates than in the recent past.
The report estimates that capital investment was £11.4 billion in 2012 and will reach a record £13.5 billion this year. The development part of the industry is undoubtedly going through a boom at the present time, with many new developments, notably in the West of Shetland area.
Aberdeen and other parts of the country are clearly benefiting from the high level of investment. I believe there are three main reasons for the current boom: high oil prices; technological advances with heavy oil fields, previously uneconomic; and the reversal of many of the ill-advised measures in the 2011 Budget. However, I expect a substantial fall in capital spending after 2017, so the boom will only last for a few years.
The report states that the industry paid corporation taxes of £6.5 billion on production in 2012-13. Oil & Gas UK understandably wish to remain neutral in the Scottish independence debate but the inevitable conclusion from their statistics is that North Sea oil revenues will fall substantially in the future.
A huge increase in oil prices could change the picture but that is very unlikely. The Economic Report 2013 is generally excellent, as in previous editions, but there are a few parts which disappointed me. For example, it claims that the industry has created 358,000 jobs, which is an unbelievably high estimate. The real number is less than half of that.
• Tony Mackay is an oil consultant and economics expert at Inverness-based Mackay Consultants.