Oil and Gas industry worth over £35bn to UK economy, new report reveals


  By Martin Kelly
A new report by Ernst and Young has revealed that the oil and gas industry contributes over £35bn to the UK economy.  The study, commissioned by Oil and Gas UK, found that from 2008 to 2012, the number of people employed in the sector grew by over 21,000 jobs.

The number of people employed in the sector increased by 21,187 to some 127,102 between 2008 and 2012.  The study also revealed average salaries increased from £42,000 in 2008 to £47,000 in 2012. 

However the Ernst and Young report acknowledged that this total employee calculation is probably an underestimate due to individual contractors not being included and overseas companies also being excluded.  Oil & Gas UK estimates the total number of employees involved in the UK upstream oil and gas supply chain to be 450,000.

The report found over 3000 companies involved in the oil and gas sector in the UK.  There had been year-on-year growth in total company turnover between 2008 and 2012 with a significant increase in both 2011 and 2012.

According to the research, despite the era of cheap oil being over, it found “global demand for oil and gas remains high” with demand for energy set to increase significantly.

The report says: “The International Energy Agency, in its World Energy Outlook 2013, anticipates global energy demand to increase by one-third from 2011 to 2035 and emerging economies will account for more than 90% of the global net energy demand growth.  Of the 790 billion barrels of total production required to meet the projections for demand to 2035, more than half is needed just to offset declining production.”

It adds: “In a world of sustained high oil prices but declining production, the outlook for the oilfield services industry is robust.  The industry will likely be in a ‘slowing whilst growing’ mode whilst its customer base adapts to rising costs, unconventional resources and uncertainty in many geographies regarding future government policy.”

The report warns that advanced recovery techniques will be critical to ensure continued supply, but that technological advances will reduce costs and extend the life of oil fields.

The report highlights the opportunities this presents: “The UK oilfield services sector is already a global leader and there are significant opportunities, both at home and overseas, for the sector to continue going from strength to strength.”

Challenging claims from some quarters that the sector has no long term future, it adds: “Despite declining United Kingdom Continental Shelf (UKCS) production in recent years, there are a number of new fields under development, which are necessary to ensure future significant investment in the UKCS.”

However it warns that the industry must continue to attract new talent, “In addition, attracting new talent to join the industry will be key for oilfield services companies to control salary costs and manage attrition levels.”

On the need for a stable tax regime, the report says: “The certainty around tax relief on future decommissioning costs should lead to increased asset churn which will inevitably drive increased investment in extended field life using enhanced oil recovery techniques, and, as such, delay the onset of actual decommissioning activity. 

It adds: “This should also extend the producing life of the UKCS as a major oil producing province.”

Commenting, SNP MSP Maureen Watt said:

“This report is further confirmation that the oil and gas industry has a bright future ahead of it.  There is still a huge amount of wealth remaining off Scotland’s coast and it is more important than ever that the right decisions are made to make the most of our valuable resources.

“But Westminster has consistently let us down on oil and gas, squandering our resources and downplaying the importance of the industry for more than 40 years – we cannot allow them to waste the next 40 years.

“We only have to look across the water to Norway to see how our oil revenues could have been used – while Norway has an oil fund worth around £500bn, Scotland has been left with nothing.

“Westminster does not deserve another chance with our oil – only a Yes vote in September can allow us to establish an oil fund and reap the rewards we have so long missed out on.”