Letter from Edinburgh - Friday 30th September 2016

This week, Tavish writes about the challenges facing the oil and gas industry, and the importance of vocational education. 

It was vaguely disconcerting when an economist stood up in front of the assembled oil and gas industry in Aberdeen on Tuesday and delivered a forthright and fascinating commentary on the prospects of oil. Not because he was polished and thoughtful. More that he looked the same age as my oldest kids.

UK Oil & Gas, the trade body for the industry, has published an economic report. Two findings struck me, the first that the cost of producing a barrel of oil in the North Sea has fallen from an average of above $30 to $16. The North Sea has gone from being the most expensive part of the world to the most competitive with any area of the globe.

But that has come at an obvious cost. There are 120,000 fewer people in jobs connected to oil and gas then three years ago. That is the human cost, for men and women who have worked for the oil majors and supply side companies have lost their jobs. Aberdeen reflects that. A cross town drive first thing in the morning used to be a nightmare of the Anderson Drive traffic jam. It is not so now.

Can any upturn bring some of these skilled people back into the industry? Statoil opened a swanky new office last week and is recruiting. Hurricane Oil, recently in Shetland, is bullish about their Lancaster field west of Shetland. BP is looking now at post-2020 production.

That was BP’s Mark Thomas’s main point. Production of oil will collapse in the UK Continental Shelf unless investment plans are made now. Exploration for new fields has stopped. There are fields such as Chevron’s Rosebank to the west of Shetland that are huge. But the industry needs to commit to these and to exploration and appraisal. The governor of the Bank of England, Mark Carney, offered his thoughts too this week in Scotland. He detected some rays of sunshine amid dark clouds for the industry.

The industry has coined the phrase ‘the new normal.’ That is oil prices at somewhere around $50 a barrel. If production costs are now averaging below $20 then there are healthy profits to be made which means new investment. So amid the worries and uncertainty that exist, there is hope for the future of this enormous industry that has been part of Shetland and Aberdeen for 40 years.

After Aberdeen I headed to Moray College in Elgin for the construction industry apprenticeship awards where final year plumbing apprentice Ali Scott picked up an award. Fiona Hodgson is the boss of the plumbing employers’ federation. She made a good speech talking about why vocational education leading to work is every bit as good as a university degree. Absolutely right. We need both.

The world will always need plumbers. And electricians. And bricklayers. And painters. So this makes the decisions made at school all the most important. Giving young people some experience of work and practical skills through the Shetland Learning Partnership with our two colleges is the right approach. We need to do more of this.

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