Whether North Sea crude oil prices swing low or swing high, the Aberdeen area needs £2 billion of immediate investment infrastructure to help support the industry to thrive.
This would make sure the vital oil and gas sectors and related supply-chain industries have the infrastructure to develop and plan for the long term and secure the future of the north east of Scotland as the UK’s economic powerhouse.
That was the key message for the Scottish and UK governments in Holyrood and Westminster at the north east oil and gas summit from Cllr. Jenny Laing, leader of Aberdeen council.
Following a series of similar such summits in Europe’s oil capital since the price of benchmark Brent crude oil from the N. Sea fell by nearly 60% in six months, Laing said the wholesale price collapse was caused by rapid acceleration of US shale gas production before the price bubble burst, continued high production by OPEC members and a reduction in world demand as US and EU economics slow down.
Cllr Laing said: “Let’s put this in some local historical context. It is now 50 years since the first oil and gas company located in Aberdeen. And almost immediately we started to experience the cyclical nature of the oil and gas industry, with its health tied to the price of Brent Crude.
“This area has been affected by major swings and low points throughout the decades – most notably when the price dropped to under $10 a barrel in July 1986. And each time there is a decline in oil price, there is a rallying round of industry, government and the broader oil and gas community to deal with the crisis.
“Cost reduction, fiscal review and diversification are debated and discussed. Promises are made and some effective short term solutions are put in place. But the price invariably recovers and the momentum to deliver on longer term infrastructure investment falls by the wayside.
“But the story of Britain’s oil and gas industry is not just about its impact on Aberdeen and the north east but its impact across the whole of Scotland and the UK – through nationwide supply chains and substantial exchequer contributions.
“Aberdeen competes globally for the investment, skills and resources that sustains the oil and gas industry. We are seen as the only UK based Energy Capital and it is often the case that investment lost to Aberdeen is investment lost to the UK.
“Industry and local government have long been concerned with investing in the skills base and infrastructure to keep costs down. Our concerns must be more than about fiscal measures – which are of course vitally important – but we need to ensure the long term sustainability of the industry.
“We, as a council, need to think about the potential impact locally of a loss to accommodation providers, cancellation of investment in property, loss of business rates from empty offices and any job losses as a result of an extended period of low oil prices.
“We have been thinking strategically about a package of locally-led growth proposals that will also begin to address some of the challenges set out in the Wood Review.
“Aberdeen’s competitors in the oil and gas industry – from Houston to Dubai and from Perth to Stavanger – have made significant investment in infrastructure. It is important that Aberdeen and Aberdeenshire consolidate and expands their capacity to ensure new and old industries can thrive in the north east.
“But, due to Aberdeen’s relative prosperity, we receive the lowest share of funding of any Scottish local authority. And pressures to deliver our statutory duties and amid continuing austerity measures mean that we are severely constrained in our ability to help address the urgent concerns of industry.
“There is evidence that – despite Aberdeen’s booming economy over the last 10 years – the lack of enabling public sector investment is holding back investment from the private sector.
“In particular a lack of transport capacity is constraining housing and employment. Development of the airport is limited by congested roads and a much needed £400m expansion of the harbour is seeking a public contribution for roads.
“That is why in November 2014 <as the price of benchmark Brent crude oil was plummeting> we submitted strategic briefing documents to the Scottish and UK governments to kick start discussions for an Aberdeen city regional deal to catalyse growth and diversification for existing and new industries.
“I also think we have to bear in mind the numbers of jobs that are connected with the oil industry – 450,000 throughout the UK. We also have to accept the amount of money that is brought back into the Treasury as a result of this industry.”
Alistair Carmichael, the UK Govt’s Scotland Minister, replied: “Government at all levels must work together with industry to deliver for the people who live and work in a city region.
“I know that Aberdeen council and others have been putting in a lot of effort to prepare for further discussions with us on this, and I am looking forward to hearing more about their detailed proposals on Monday.”