When people think about the oil and gas industry in Scotland, they think about Aberdeen and the North East of Scotland and whilst it is true that the highest concentration of jobs in the sector is to be found in and around Aberdeen, the fact is that around half of all the oil and gas related jobs in Scotland are spread around the rest of the country.
That is why what happens in the North Sea matters to all of Scotland and why persistent low oil prices are a concern to us all. The results of Scottish Chambers of Commerce’s quarterly economic indicator for the period from April to June this year make for very interesting reading in this regard.
For the first time in more than a year, performance results in the financial and business services sector were either flat or down and optimism had weakened significantly. When we looked in more detail at these figures, it became clear that much of this negativity was coming from businesses in the oil and gas supply chain, while businesses in the wider service sector were in fact still performing very well.
It was also apparent that the weaker performance in oil and gas businesses was not confined to the North-east of Scotland but was being felt by businesses in the sector right across the country. This is a timely reminder of the challenges the industry in the North Sea continues to face.
Many of the newer oil fields have high production costs, which are profitable when the oil price is high but less so when oil is between $55 and $60 a barrel, as it has been recently.
While some aspects of the service sector operate internationally and can find new opportunities in areas of the world where production costs are lower, the fact remains that the industry in Scotland is undergoing a transition to reduce costs and to plan for the future when, hopefully, oil prices will pick up.
The problem is that in the meantime, many businesses are facing subdued performance and are downsizing and there may well be knock-on effects for the rest of our economy. Our indicator suggests that these wider negative effects are very limited at the moment but the longer the oil price remains low, the greater the concern is that the problems experienced by the oil and gas sector may be felt more widely, both in terms of other sectors and across Scotland.
While global oil prices may be beyond our direct influence, the industry and government need to ensure that they are well placed to respond to the challenges they face.
Businesses must continue to drive efficiencies and government must utilise the Energy Bill and the Oil and Gas Authority to ensure that effective regulation of the industry is used to create the stable environment that businesses need in the North Sea.
With action from industry and the right support from government, Scotland’s oil and gas sector can build for a prosperous future.
• Liz Cameron OBE is chief executive of the Scottish Chambers of Commerce.