Member News
By Malcolm Bruce MP - 13th July 2010
Malcolm Bruce MP writes for ePolitix.com on his debate in Westminster Hall on infrastructure support for the offshore energy industry.
As the constituency with the second largest number of oil and gas sector jobs
in the UK, this debate is of particular importance to the people of Gordon.
Together the five constituencies that make up Aberdeen City and Aberdeenshire have over 130,000 people employed in the oil and gas sector on what is widely recognised to be a major energy centre which leads the world in subsea technology. It has critical mass with hundreds of specialist companies offering high-tech expertise.
Since the first fields came on stream nearly 40 years ago around 38 billion barrels of oil equivalent (boe) have been produced. Today it remains an attractive location for the industry with the prospect of a further 15-25 billion boe still to be extracted but in spite of making huge contributions in tax and business rates its infrastructure is underdeveloped compared with equivalent centres in Europe and beyond.
The industry's contribution to the UK economy is reflected in its share of Gross Value Added (GVA) which was estimated in 2007 to be £25bn, at 13 percent the largest contributor to the UK's GVA. This in itself is considered to be an underestimate given it does not include the full supply chain coverage.
There is now also a growing offshore renewables industry which along with the huge oil and gas resources remaining to be tapped reinforces the argument for further investment in infrastructure, particularly to transport links such as port facilities and road upgrades. Rail connections also need to be upgraded and the introduction of High Speed Rail with links onto Aberdeen would benefit the sector as would maintaining key air links to London and other European centres of interest.
The fear is that a failure to fully embrace the infrastructure challenges in North East Scotland could see some of the industry moving away from Aberdeen to easier or less regulated territories. The issue of licensing of the sea bed is one example where bureaucracy is frustrating the sector. Currently the responsibility is shared between the Department for Energy and Climate Change and the Crown Estate. Overlapping license areas make it unlikely that infrastructure improvements will be constructed in an optimal manner.
Without improved infrastructure support, any increased investment in offshore renewable technologies, including renewables, is likely to result in competition for limited port facilities and for specialist services used by both sectors. This could lead to good synergies but may also cause cost inflation that may make marginal oil and gas fields unprofitable leading to a loss of investment, jobs and revenue to the Treasury. This could in turn drive up costs for other industries.
The fossil fuel levy which is yet to be determined is designed to promote investment in new renewable technology and could legitimately be used for infrastructure investment.
When it comes to North East Scotland, government ministers need to view the situation holistically and recognise that although matters of transportation and planning are devolved to the Scottish Parliament they still impact directly on taxation revenues from the oil sector.
In the 1970s, during the first phase of northern North Sea development local authorities received a special supplementary rate support grant to enable them to respond to infrastructure demands. A similar response is needed to support the next phase if deficit-reducing future revenue is not to be lost.
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