- 6 Jun 2017
Thank you, Deirdre (Michie, Oil and Gas UK CEO), and thanks to all of you for coming along this morning.
This conference is undoubtedly one of the key events of the year for an industry that is of vital importance to Scotland's economy. I think it is worth reflecting on the fact that this industry supports 120,000 jobs, its supply chain exports to more than 100 countries across the world, and it has generated more than £330 billion in tax revenues for the treasury. It is impossible to overstate the importance of this industry to not just the Scottish economy, but the UK economy as a whole.
It is also of course an industry which has seen tough times – particularly in these last three years.
So I want to start today by paying tribute to the skill, determination and the sheer hard work of so many people in the sector. It is thanks to your efforts that there do now seem to be some genuine signs of recovery.
The average cost of extracting a barrel of oil from the North Sea has almost halved in the past three years – from $30 dollars a barrel to just over $15 dollars. I think it's important to recognise that this has not been easy to achieve. It has involved many tough decisions along the way. But equally, it's important to recognise that that kind of efficiency and improvement is crucial to the long-term sustainability of this industry.
We've also seen some really encouraging news from several major developments this year. Just two weeks ago, BP's Quad 204 field started production – that's one of the largest projects ever undertaken in the North Sea. In late March, the Flyndre field produced its first oil. On the same day, Hurricane Energy produced an estimate that there could be up to one billion barrels of oil in the Greater Lancaster area west of Shetland. And I'm sure that Amjad (Bseisu) will say more about EnQuest's Kraken field, which is expected to produce its first oil next month.
The fact that 25 exploration licences were awarded in the most recent licensing round provides grounds for optimism that other new fields may be discovered. And we've also seen a significant increase this year in business activity such as mergers, acquisitions and asset transfers. That's something which can be particularly important in relation to mature fields. It means that they can be taken over by companies best placed to seize these opportunities in the future. And that will help the industry in its efforts to maximise economic recovery.
All of this provides fairly compelling evidence that – despite the significant difficulties of the last three years – the oil and gas sector is going to continue to be crucially important to Scotland for decades to come.
So because of that, my main message today is a fairly straightforward one. The Scottish Government understands the sector's current, continuing and future importance to our country. And so we are determined to work with all of you to provide the support and the stability that you need to enable you to succeed.
Now, Oil and Gas UK published its 'Blueprint for Government' paper last week. It is – quite explicitly – a pre-election paper. And since we are two days before an election, you won't be surprised to hear me say that I agreed with absolutely everything in it! But what struck me most strongly was how significant an overlap there is between the asks of that paper, and the work that the Scottish Government is already seeking to do.
For example one of the key proposals in the 'Blueprint' is for the UK Government to establish a long-term energy policy. Here in Scotland, we published our outline energy strategy in February. I hope that many of you have taken the opportunity to respond to it.
Our draft strategy points out that oil and gas currently provides approximately 75% of Scotland's energy needs. And it makes it clear that, even as we reduce overall energy use, and move to low or no carbon technologies, the sector will continue to play a major role in providing secure energy supplies.
In fact in many areas – from hydrogen fuel technology, to carbon capture and storage, to reducing the cost of offshore wind – the oil and gas sector has an important contribution to make. Among other things, you can help to provide the infrastructure, skills and expertise which are required for us to be a world leader in those technologies. The fact that Scotland already has so many world class oil and gas companies is a major asset as we seek to build a world class renewable and low carbon sector, and that's something we should never forget to recognise and make sure we capitalise on.
So the Scottish Government will continue to support the oil and gas sector as strongly as we possibly can. I want to focus today on three different areas where we are seeking to do that – innovation, skills and decommissioning.
All of us know that innovation is absolutely crucial to this sector – for maximising economic recovery, for reducing costs without compromising safety, and for enabling our supply chain to continue to win new business overseas. The main leaders of innovation will always be the oil and gas companies themselves – I know that there have been some superb new products and processes developed in recent months and years to help to reduce costs.
However, there is an important role for government to play as well, working in close partnership with business. That's why the Scottish Government has already committed £90 million over the next 10 years – funding which has been matched by the UK Government – to develop the Oil and Gas Technology Centre. That centre opened in March, and it aims to ensure that the North Sea is recognised as the leading centre anywhere in the world for developing and adopting new technology for mature fields. It is focussing on key issues such as how to reduce the cost of new wells, how to discover smaller oil fields, and how to use data and information technology to further improve productivity.
In addition to the technology centre, we have also provided funding through Scottish Enterprise to promote business resilience and innovation.
Last year, Scottish Enterprise provided £16 million of support for 111 innovation projects. Those projects had a total value of £43 million – that's three times the value of the projects supported last year.
And last month, Scottish Enterprise confirmed a £1 million investment in the Balmoral Group's project to develop new facilities for subsea testing. That project will make it easier for companies in Scotland to test how products will work in very deep waters.
By doing so, it will help them to develop and manufacture equipment which can then be exported around the world. It's a further example of how we are working with businesses in the supply chain to increase our international competitiveness.
And alongside our investment in innovation, we're also very conscious of the need to support skills in the sector. We have a fundamental obligation, of course, to help those who have lost their jobs in recent years. We want to help them to find employment – in other sectors if necessary but, where possible, in oil and gas. We don't want to lose people's talent, skills and experience. That's really important as we look ahead to what is a bright future for this industry.
That's why the Energy Jobs Taskforce is working to maximise employment opportunities for people across the sector. As part of those efforts, over 2,000 individuals have had applications approved for our Transition Training Fund. Initial surveys show that it has helped six out of ten participants find employment – with a third of those securing new opportunities within the oil and gas sector.
We are also taking longer term measures – including many of the ones called for in the 'Blueprint for Government' paper. For example we are working to encourage greater take-up of science, technology, engineering and mathematics (STEM) subjects at school and university – particularly among girls and young women.
And of course, skills is one of many areas where the oil and gas sector could be adversely affected by Brexit. At present, the sector is heavily internationalised in terms of its workforce and its supply chains. That's something Scottish businesses have hugely benefited from.
That's why the Scottish Government shares the aspirations of Oil and Gas UK's 'Blueprint' – frictionless access to markets and labour, and continued partnership with Europe on energy policy. It's why we have argued for the UK and Scotland to remain in the single market, even after the UK has left the EU. And it's why I'm very concerned, and I think we should all be concerned, about the possible outcomes which will arise – for the oil and gas sector, and for our economy and society as a whole – if we leave the EU through a hard Brexit deal, or perhaps with no deal at all. And that's something all of us have to work hard to avoid happening.
Now, as I've hopefully made clear throughout all of my remarks, the North Sea will continue to produce oil for decades to come. It still contains up to 20 billion barrels of recoverable reserves. Our primary aim – and I want to underline and emphasis this – our primary aim is to maximise economic recovery of those reserves.
But the North Sea is undoubtedly a mature basin – there is no getting away from that fact. After all, it is now almost 50 years since Amoco discovered the Montrose field – the first major oil discovery in Scottish and UK waters. Which is why the final issue I want to touch on today is decommissioning.
Over the next 10 years, we know there is likely to be more than £17 billion of expenditure on decommissioning in the North Sea. It is an important and growing economic opportunity for many companies. And it's one which is already benefitting Scotland: Scottish based firms have secured more than half of the value of the total contracts awarded so far from decommissioning activity.
And just last week, Repsol-Sinopec announced that the decommissioning of the Buchan Alpha oil production vessel will take place in Shetland. It's just one of example where the supply chain has worked together to showcase our strengths and compete in what is an extremely lucrative market.
We want to increase our rate of success here. That's why we want to see a deep water port established here in Scotland. And it's why we launched our £5 million decommissioning Challenge Fund. It will help to upgrade ports and harbours – improving capacity, reducing potential bottlenecks, and helping even more decommissioning activity to take place here in Scotland. So it's important that we do harness this opportunity but equally important that we do not allow it to divert us from that principal which is maximum economic recovery. These things should not be seen as mutually exclusive.
I mentioned just now that the first major discovery of oil in Scottish waters was in 1969. In the decades since then, the efforts of hundreds of companies, and hundreds of thousands of individuals, have helped to make oil and gas one of the great success stories both of Scotland and the UK.
One thing which the 'Blueprint for Government' paper makes clear is that those successes are not consigned to our past – if we do the right things now, if we work together now, then we will continue to see these successes many years into the future.
In fact, the paper estimates that if we maximise economic recovery from the North Sea, and promote and support the supply chain as effectively as possible, the oil and gas sector could generate £920 billion for the UK economy. That's almost £300 billion more than if we don't make the right interventions. So that's the size of the prize and it is one we absolutely must seize.
That £290 billion opportunity is something the Scottish Government is determined to help you seize. So I want to end today by underlining and stressing the point that I started with. We are absolutely committed to working with you in the years ahead to provide the conditions that you need to continue to be successful. Because we know that if we do that, we will deliver benefits not just here in the north east of Scotland, but to the country as a whole, for many more years and decades to come.
Email: email@example.com – Central Enquiry Unit
Phone: 0300 244 4000 – Central Enquiry Unit
The Scottish Government
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