UK Prime Minister David Cameron is visiting oil city Aberdeen today to announce an injection of cash to help the ailing city as the industry struggles to deal with low oil prices.
Cameron will sign a new "UK City Deal" fund of up to £250 million (US$358.4 million) for Aberdeen. The deal will see UK government, Scottish government and local authorities work together to invest in future of North East Scotland, which is the hub for the North Sea oil industry.
The cash will be used to aid for innovation, including creating an energy innovation centre, and diversification in the oil and gas industry. Further measures are also expected to be announced later today.
It is expected the cash will also go towards the expansion of Aberdeen harbour, enabling the city to compete for future decommissioning work. Other industries will also be supported, such as the biopharmaceutical and agri-food industries, to diversify the area’s economy. It is expected there will also be commitments to improve digital connectivity across the area.
Aberdeen has been bearing the brunt of the oil price down turn. A report last year, Fuelling the next Generation, predicted the industry would suffer a net loss of 23,000 jobs up to 2019, with many of those expected to go in Aberdeen.
Hotel occupancy rates in the city have plummeted - the city had the largest fall in occupancy rates in the UK, at 19.7% down in October last year, according to a report by business advisors BDO - as work has dried up in the basin, with North Sea exploration drilling at record lows and new projects mostly on hold.
According to a report by Norwegian analysts Rystad today, some $230 billion earmarked for pre-development projects has been deferred since 2H 2014, delaying over 3 MMboe of supply.
Secretary of State for Scotland, David Mundell, said: "Oil and gas is a crucial sector, not just for the North East of Scotland but for the whole of the UK. I know it’s a very tough time for people who work in the industry and their families, and I am determined that the UK Government will do what it can to support them."
In the last Budget, the Chancellor George Osborne announced a £1.3 billion ($1.8 billion) package of reforms for the UK Continental Shelf, including tax cuts for the industry and a £20 million ($28.6 million) funding seismic survey, the results of this will be released later this year.
Yet, this came after a huge tax hike on the industry and while the measures were seen to help get a number of projects over the line, through directed tax breaks, their impact has been watered down by oil prices that have been struggling to get much above $30/bbl in recent weeks, after sinking to $50/bbl from highs of around $100/bbl in 2014.
The UK government has set up a new Ministerial group on Oil and Gas, chaired by Energy and Climate Change Secretary Amber Rudd. The group will coordinate the UK’s response to the oil price and focus on issues such as exports, skills and investment.
The group met for the first time yesterday, and agreed to produce a UK Oil and Gas workforce plan in the spring, focusing on what steps the government will take to support those who may lose their jobs in the oil and gas sector, including how they can move into other sectors.
Mundell is also due to visit Mozambique next month to support a drive to strike a formal agreement between Aberdeen and the town of Pemba. The aim is for a deal which will see technology designed and manufactured in Aberdeen, and the skills of its workforce, play a key role in developing Pemba into an oil and gas hub.
The UK’s oil and gas industry is its largest industrial sector, contributing around £19 billion in gross value added in 2014. As of 2014, the industry was estimated to support around 375,000 jobs across the economy.
Oil and gas are expected to continue to provide around 70% of the UK’s total primary energy from now until 2035.
There is still 11-21 billion boe to be exploited from the North Sea – half again of all those exploited to date, according to estimates. Meanwhile, between now and 2040, around £45 billion ($64.53 billion) is forecast to be spent on decommissioning of its offshore infrastructure.
Images: Aberdeen harbor.
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