Scottish government’s £10 million funding boost for Shetland oil industry

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By a Newsnet reporter

A £10million Scottish Government funding package to support plans for a deep-water quay facility in Shetland has been welcomed by SNP MSP Jean Urquhart. 

The new quay at Dales Voe just north of Lerwick on the Shetland mainland will secure decommissioning work on major offshore structures from the Northern North Sea.  The existing facilities at Dales Voe were originally built in the early 1980s for scrapping ships and constructing offshore installations.

At its peak activity the new quay is expected to create up to 150 new jobs in Shetland and Aberdeen.  The planned deep-water facility will include a 24-metre deep quay and an oil rig decommissioning yard.  It is hoped the new facilities will capture a share of the lucrative and expanding trade in scrapping old oil rigs but planners hope that the site will also become a base for other activities such as rig repairs and maintenance, ship dismantling, reception of subsea installations, an offshore supply base, as well as traditional port services.

Although there estimated to be several decades of productive life left in the North Sea and the waters off the north west coast of Scotland, and new discoveries are still coming on line, a steady stream of offshore installations in the North Sea are approaching the end of their design life.  As a result the demand for onshore demolition facilities is growing.  The total market value of decommissioning over the next 30 to 40 years is estimated to be just over £30 billion.

First Minister Alex Salmond announced the £10 million funding package following a meeting in Oslo on Tuesday with senior executives of AF Group and Lerwick Port Authority.  In 2010 Lerwick Port Authority signed an agreement with AF Group to develop the new base.

Mr Salmond confirmed the Scottish Government and Highlands and Islands Enterprise would each make up to £5 million available to support the ambitious project and said:

“North Sea oil and gas remains a huge economic driver, both for the UK and for Scotland.  With as much as £1.5 trillion worth of reserves still remaining to be extracted, alongside increasing export activities from Scottish firms, it will continue to play an important role in Scotland’s economy well into the middle of this century.

“Decommissioning is an increasingly important activity for companies in Scotland, Norway and elsewhere.  I’m determined that the Scottish Government and our enterprise agencies will do everything we can to support the continued success of the industry in Scotland – to create jobs, promote economic activity in the oil and gas supply chain and encourage skills development and wider opportunities in communities such as Shetland.”

Mr Salmond added that he is putting pressure on the UK government to match the funding delivered by the Scottish government.

Lerwick Port Authority chief executive Sandra Laurenson welcomed the announcement and the recognition by the Scottish government of the importance of offshore decommissioning to Shetland’s economy, saying:

“Today’s announcement is very welcome and we are delighted that the Scottish government and Highlands and Islands Enterprise recognise the importance of offshore decommissioning to Shetland and are supporting it in this way.

“The project to create a deep-water site for the UK offshore sector will bring benefits to the area through employment and the wider supply chain.  The planned significant investment in new port infrastructure allows us to look forward to the next phase of Lerwick’s capability in meeting the needs of the oil and gas industry for many years to come.  Lerwick Port Authority values the engagement with our partners in developing the project to this stage and the funding now secured provides a fantastic platform to ensure its delivery.”

Pal Egil Rønn, Chief Executive of AF Group also welcomed the support given by the Scottish government, and said:

“The AF Group is pleased with the support and co-operation from the Scottish government and HIE in our company’s long-range and major investment plans up at Shetland.  AF wish to bring our experience from development and operations of similar business in Norway, to develop a unique site when it comes to operational and environmental standard for the UK market.”

Calum Davidson, Director of Energy and Low Carbon, Highlands and Islands Enterprise, said:

“HIE has been working with Lerwick Port Authority and the industry for some years now to ensure we are ready to capture emerging opportunities in oil and gas decommissioning. [The] announcement is a major step forward which will build on Shetland’s strong track record in major decommissioning projects.

“Decommissioning is an important and growing part of the international oil and gas industry which could bring significant economic benefits to Scotland for decades to come.  Geographically, Shetland is a key strategic location for this project, and we have the infrastructure, the skills and the experience to make it happen. HIE looks forward to working with our partners in government and other organisations to drive this major project forward.”

Ms Urquhart, SNP MSP for Highlands and Islands, welcomed the funding boost as “fanstastic” news and said:

“Lerwick, with its extensive experience in the offshore oil and gas and decommissioning sectors, has already established itself as one of the main deep-water harbours in the Northern North Sea.

“This fantastic announcement is testament to that fact and to the skilled local workforce.

“This money, when the appropriate financial business case is completed, recognises the importance of offshore decommissioning to Shetland and will not only bring benefits to the local area but to the Scottish economy as a whole.

“When you combine Lerwick’s location with the skills of the local workforce this shows we are well placed to become a hub for decommissioning work.

“Shetlanders have been at the forefront of the oil and gas industry and this investment will ensure that Shetland is at the centre of decommissioning.”