100 days to save North Sea oil

The next UK government will have just 100 days to save 100,000 jobs in the North Sea energy sector as companies consider withdrawing investment from the UK.

Aberdeen and Grampian Chamber of Commerce’s 39th energy transition report shows there has been a sharp decline in employment in the manufacturing, exploration and renewables sectors in anticipation of the general election result.

Industry confidence in UK operations has fallen to record lows, a long-running survey has found, with high taxes and a potential exploration ban threatening to prematurely end our world-class domestic oil and gas industry.

After a leading investment bank warned that up to half of the direct and indirect jobs supported by the North Sea could be lost in just five years, the House estimates that the party that wins the election has 100 days to restore confidence or face a loss of 30% of the value of its investment billion pounds.

The Chamber also calls again for the establishment of an independent body, free from political influence, to supervise the energy transformation.

Like the Bank of England – whose main mission is to maintain monetary and fiscal stability – the new body should be charged with developing recommendations that could ensure cross-party consensus and protect the sector from future political shocks.

The report also calls for a “relentless focus” on job creation in the renewable energy sector, echoing calls from the Unite union for major investment to create jobs in wind energy production and operation, hydrogen, carbon capture and decommissioning.

The Energy Transition study, sponsored by KPMG and ETZ Ltd, published today shows that companies expect only around half of their work (51%) to be related to renewables by 2030, down from 34% today, although disadvantages remain factors.

The 39th edition also includes:

• Even though the price of oil remains above $80 per barrel, confidence among companies operating in the UKCS is currently lower than during the financial crash and pandemic, when oil prices fell to around $16 per barrel.
• Taxes, the political environment and market stability are the three biggest concerns facing companies in the UK energy sector.
• UK-based companies are increasingly focusing their investment and resources on overseas projects and markets.
• Profitability and the regulatory environment are cited as the biggest barriers to diversifying into renewable energy, with respondents expecting only 51% of their business to be based on oil and gas by 2030.
• More than two-thirds of energy sector companies (67%) believe that none of the British political parties proposes the right energy transformation strategy.
• All companies face significant recruiting challenges, and half of companies are losing more employees than usual to retirement. A third are losing more workers than usual to overseas projects.

Russell Borthwick, chief executive of Aberdeen & Grampian Chamber of Commerce, said: “The Energy Transition study charts the ups and downs of the UK energy sector over the last 20 years, but never before have its findings been more important; and the need for action is so urgent.

“Our survey and focus group feedback shows that the next government has just 100 days to convince the industry that the UK Continental Shelf has a future.

“Failure to do so will result in the current apathy that is evident throughout the report turning into outright rebellion, with companies moving their resources to countries that offer a less hostile business environment and better profits. Privately, industry leaders are very clear that this will be the result of an expanded windfall tax and reduced relief.

“If this happened, our road to net zero could look more like a road to nowhere. A path that will leave Britain poorer, less energy secure and beholden to foreign regimes for the energy needed to keep the lights on and our economy running.

“Charging a different path – one in which the UK seizes the enormous economic opportunities of the energy transition – requires diversity of thought and approach, and the views of industry, scientists and workers.

“We need a new body, free from political interference, to make the right decisions about the long-term future of our energy sector. I used to think it was important. Now I think it’s essential.”

Maggie McGinlay, chief executive of ETZ Ltd, said: “ETZ Ltd is delighted to be working with Aberdeen & Grampian Chamber of Commerce and KPMG on this latest study, which highlights the need to provide investors with stable policy signals to drive the energy transition forward.

“We need to supercharge our renewables revolution by cutting red tape around networks and planning that clearly do not encourage the level of investment required to achieve this goal.

“However, it is encouraging that there is clearly still a strong appetite across our industry to accelerate transformation, and this is reflected in ETZ Ltd’s continued support to the supply chain as they look to capitalize on the huge opportunities ahead.

“As the general election approaches, I am calling for the political debate to focus on the need for a common industrial plan that recognizes the enduring, key role the energy industry plays.

“Whoever comes to power must see the transition as an unprecedented opportunity to support decarbonization and lasting benefits for industry and employment for communities in the north-east of Scotland and the wider UK.”

Paula Holland, senior partner in KPMG’s Aberdeen office, said: “It is abundantly clear that the political instability of an election year, ever-changing tax policy and market uncertainty are understandably weighing heavily on the minds of those who responded, outweighing concerns about the oil price for the first time.

“This difficult climate is seen as a significant setback to the pace of the UK’s diversification into renewables and other low-carbon energy sources, which is closely linked to the investment decisions being made in the region every day.

“The results show that the majority of businesses remain optimistic about Aberdeen’s long-term future and its place on the world stage as a major energy hub.

“Overall, it’s clear that everyone just wants to know which way the wind will blow. “But waiting is a waste of time on the international stage, which is why it is so important that Aberdeen remains focused on securing its premier position during the transition period.”

The survey results will be announced this morning at a business breakfast in Aberdeen.

Read the latest issue of OGV Energy magazine HERE

Published: 27/05/2024