The oil and gas sector has for many years been the largest single industrial investor in the UK, and has seen a particularly large increase in investment since 2010 – and a new Scottish Government report published yesterday forecasts that this boom will continue to 2020 and create more than 20,000 jobs jobs in Scotland’s oil and gas sector.
The industry body, Oil and Gas UK reports that investment in the North Sea reached £14.4 billion in 2013, more than double the level observed in 2010. The majority of capital investment (83%) is estimated to have taken place in Scottish waters.
Over the period 2014-15 to 2018-19 as a whole, Oil and Gas UK and the Office for Budget Responsibility (OBR) forecast that cumulative North Sea investment will stand at around £47 billion and £53 billion respectively.
Firstly, a number of large fields are currently under development.
The £2 billion Golden Eagle development in the Central North Sea region is estimated to hold 140 million barrels of oil equivalent (boe) and is expected to begin production in late 2014.
The £4 billion Mariner heavy oil field, in the Northern North Sea, is estimated hold 250 million boe of recoverable reserves and is expected to start production in 2017.
Secondly, new field allowances, technological improvements and an improved economic outlook have made a number of marginal projects more financially viable.
For example, the Kraken and Kraken North heavy oil fields – located in the Northern North Sea – were originally discovered in 1985. As a result of low flow rates during the development process the fields were deemed non-commercial. However, in 2013 EnQuest announced that the development would go ahead with the fields both qualifying for the heavy oil fields value allowance.
A similar outlook was highlighted by the Wood Review which noted that: “Production hit a low of 1.4 billion boe [per day] last year, but a number of larger new fields are about to come onstream in the next two to three years and that could take production back to the level of two to three years ago where it could be sustained for the remainder of this decade.”
Tax receipts from North Sea oil and gas production totalled £44.8 billion between 2008-09 and 2012-13.
In 2012-13, the last year for which outturn data are available for Scotland, total UK receipts were £6.1 billion.
As set out in the Government Expenditure and Revenue Scotland (GERS) publication, 84% of North Sea tax revenue, approximately £5.6 billion, was estimated to have been generated from production in Scottish waters in 2012-13.
Over the past five years, receipts from oil and gas production in Scottish waters are estimated to have totalled £40.3 billion, 90% of the UK total.
North Sea operators also rely on an extensive supply chain of companies in both Scotland and the rest of the UK. These companies make a substantial contribution to the economy. Analysis by Ernst & Young in 2014 estimated that the UK upstream oil and gas supply chain generated more than £35 billion of turnover in 2012.
And a recent Bank of Scotland survey also found that approximately 39,000 jobs could be created by the UK oil and gas industry over the next two years.
The report concluded that four times as many jobs are expected to be created by suppliers of equipment and services than by explorers and producers. Slightly more than half of the jobs are expected to be created by companies based in Scotland.