For decades, the true worth of the UK's offshore oil and gas industry has been "underplayed" by successive London-based governments desperate to thwart the growing call for self-determination in Scotland. Now, on the back of record investment in the industry and with the publication of Oil & Gas UK's 2013 Economic Report, the genie is out of the bottle once and for all.
Renewed commitment to extract oil and gas from the UK's Continental Shelf (UKCS) by both the UK and Scottish governments and the industry itself has done much to attract the record-breaking £13.5 billion of investment this year.
Malcolm Webb, Oil & Gas UK's chief executive, explains, "The offshore oil and gas industry generates almost £40 billion a year for the economy by producing oil and gas worth £32 billion and by exporting oilfield technology and expertise worth £7 billion. The recent sharpening of focus within government and industry on the business environment required to grow that contribution in future has given investors the confidence to develop new fields and redevelop older fields, so we are now seeing the highest-ever investment. This is heightening the business opportunities for the UK's world-renowned supply chain and is boosting employment to 450,000 jobs across Britain."
The UK's world-class supply chain now generates sales of £27 billion a year, including £7 billion in exports. It is considered a world leader in sub-sea engineering which is worth £9 billion a year and holds 45 per cent of that global market, and well services companies are generating revenues of almost £2 billion a year, the highest since records began.
Oil and gas extraction has provided the UK Exchequer with more than £300 billion in production tax over the past 45 years. In time, the current unprecedented investment will lift production, bringing with it significant funds for the public purse. In 2012-13, £6.5 billion was paid in tax on production, representing over 15 per cent of the Exchequer's total receipts of corporate tax.
In addition, the oil and gas supply chain is estimated to have paid an additional £5 billion in corporate and payroll taxes, taking the total industry contribution to almost £12 billion.
Mr Webb says, "The industry is the UK's largest industrial investor and contributor to gross value added. With 15 to 24 billion barrels of oil equivalent (boe) still remaining to be developed, the UKCS possesses great potential for contributing to economic growth for decades to come."
According to the UK government, oil and gas will still provide some 70 per cent of the UK's total primary energy in 2030. Although the UK remained the third largest producer of gas and second largest producer of oil in Europe in 2012, annual production declined by 14.5 per cent to 567 million boe, or 1.54 million boe per day (boepd).
In 2012, only nine new fields with total reserves of 146 million boe began producing. Much more encouragingly, the industry anticipates that 15 fields, with combined reserves of 470 million boe, will come on-stream in 2013. The Banff, Gryphon and Elgin fields are also coming back on-stream, but over the year, production is now forecast to fall to a range of 1.2 to 1.4 million boepd.
Referring to the continuing decline in production, Mr Webb says, "Despite impressive investment in new developments, the production efficiency of existing assets remains in worrying decline. DECC [Department of Energy and Climate Change] and the industry are working to tackle this serious concern through a joint task group. The Wood Review, which is currently examining how to maximise UKCS recovery, is also very timely and we very much look forward to seeing the recommendations early in 2014."
Mr Webb concludes, "The industrial strategies launched by both the British and Scottish governments provide a clear framework for increased investment, innovation, growth in exports and British job creation. Unlocking the total economic potential of the UKCS will require both the industry and government to play their respective parts to the full."
Oil value downplayed
Earlier this year, former Labour Chancellor Denis Healey admitted that his party deliberately downplayed the value of North Sea oil in order to thwart support for Scottish independence.
The admission from the Labour peer emerged during an interview conducted by the editor of Holyrood Magazine, Mandy Rhodes. The senior Labour politician was asked about the North Sea oil issue in the run-up to the 1979 referendum for Scottish Home Rule.
Lord Healey said, "I think we did underplay the value of the oil to the country because of the threat of nationalism but that was mainly down to Thatcher.
"We didn't actually see the rewards from oil in my period in office because we were investing in the infrastructure rather than getting the returns and really, Thatcher wouldn't have been able to carry out any of her policies without that additional 5 per cent on GDP from oil."
In 2005, a secret UK government report buried for more than 30 years was released under new Freedom of Information legislation. The report, compiled by Professor Gavin McCrone in 1974, said oil discoveries in the North Sea at the time would make an independent Scotland one of the world's richest nations, with a budget surplus so large it would be "embarrassing".