Scottish Oil and Gas Boom

The oil and gas sector is an important part of the Scottish economy. It is estimated to contribute around £25 billion to Scottish GDP, approximately 17% of the total in 2011. The sector is also a major exporter, with total UK production of oil and gas boosting the UK balance of payments by an estimated £40 billion in 2011. The growth of the oil and gas sector in Scotland has produced a wider supply chain to support the industry. There are estimated to be 2,000 companies in the oil and gas supply chain operating in Scotland, providing services to the offshore industry worldwide. In 2010, the Scottish supply chain generated sales of £16.3 billion, of which over £7.6 billion was accounted for by international sales.

2013.06.12 - Scottish Oil and Gas Boom Figure 1

Analysis by Professor Alex Kemp of Aberdeen University estimates that, when Scotland’s share of the UK Continental Shelf (UKCS) is demarked using the median line, it accounted for 96% of UK offshore oil production and 52% of offshore gas production in 2011. This resulted in Scotland accounting for an estimated 78% of total UK hydrocarbon production in 2011.

Scotland’s estimated geographical share of UK offshore tax revenue is larger due to the prevalence of oil production in the Northern North Sea which is relatively more profitable. Scotland’s geographical share of oil and gas production is estimated to have generated £10.6 billion in tax revenue during 2011-12, 94% of the UK total.

On an internationally comparable basis, Scotland is estimated to be the largest producer of hydrocarbons in the EU. In 2010, Scotland accounted for an estimated 64% of EU oil production and approximately 36% of EU total hydrocarbon production, as outlined below.

2013.06.12 - Scottish Oil and Gas Boom Figure 2

Going forward, UKCS production is expected to be increasingly concentrated in northern waters, which will increase Scotland’s estimated share of UK production in future years. More specifically:

  • Dana Petroleum and Statoil have announced significant investments to the east of Shetland.
  • Statoil’s investment in the Mariner field expected to result in thirty years of production.
  • A substantial new oil discovery was recently announced by TAQA, at the Darwin oil field in the northern area of the North Sea.

Investment in 2012 was worth £11.4 billion, the highest level for thirty years. Investment is expected to increase to £13 billion in 2013, whilst total future investment in companies’ plans is estimated to now be worth almost £100 billion.

Remaining oil and gas reserves on the UKCS are substantial, suggesting that activity in the sector is likely to continue for a significant period:

  • Analysis by the Scottish Government suggests that these reserves could have a potential wholesale value of up to £1.5 trillion.
  • Wood McKenzie estimate that approximately 85% of remaining UK hydrocarbon reserves lie in Scottish waters.

Estimates of remaining reserves in other countries, which are directly comparable with the above projections, are not readily available. However, drawing on separate internationally comparable data sources shows that Scotland is estimated to have the largest oil reserves in the EU.

2013.06.12 - Scottish Oil and Gas Boom Figure 3

A number of commentators expect production to rise in future years as a result of the recent investment in the UKCS. The latest forecasts by Oil and Gas UK suggest that production could reach 2 million boe a day by 2017. This would represent a 30% increase on current production levels. Analysis published by Professor Alex Kemp in November 2012 also projected that production could rise in the years to 2017 under a number of different scenarios.

In contrast, the Office for Budget Responsibility (OBR) forecast that production will decline by 4% between 2012-13 and 2017-18. The analysis by the UK Department of Energy and Climate Change (DECC) upon which the OBR forecasts are based notes that they incorporate “very significant negative contingencies to the aggregate figures” based on DECC officials’ judgement and past forecast deviations. Such contingencies may explain some of the divergence in the forecasts of production in future years.

The oil and gas sector is an important part of the Scottish economy, contributing an estimated £25 billion to Scottish GDP in 2011 (17% of the total). Analysis of remaining reserves shows that Scotland will continue to be a major oil and gas producer for a number of decades, with up to 24 billion recoverable boe estimated to remain on the UKCS.

Source: The Scottish Government

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