Cogent Industries

Oil and Gas

The UK industry operates as one part of a global business and its product is traded internationally, so it is important to consider its place in this wider context. Whether oil and gas reserves of the UK Continental Shelf are recovered, and in what quantities, is decided by a complex set of geopolitical variables.

Three offshore provinces (South China Sea, Gulf of Mexico and North Sea) account for half of global industry spending. Growth is forecast to 2011 in all regions except Western Europe, with greater proportions of investment and drilling activity being made in deep water areas in place of traditional shallow waters such as the North Sea.

In 2006, 29 new developments were given approval in the UK Continental Shelf, up from 22 in 2005. Resource constraints saw a 20% increase in costs in 2005/06. In 2007/08, 40 new fields were expected to come on-stream, the majority of which were subsea developments.

Rising oil prices led the Prime Minister to meet industry leaders in 2008 to discuss how, as a significant producing province, the UK could ease problems being experienced in world oil market balance. The industry and government target for UK Continental Shelf 2010 production is 3million barrels of oil equivalent per day (boepd), up from 2.8million in 2007, but the current 2010 forecast is approximately 2.6million boepd. The target for 2010 investment was £3billion, showing a significant decline from the 2006 figure of £11.5billion. It is estimated over the next ten years that £30 billion investment is required to recover planned oil and gas reserves, of which £17 billion has yet to be securedecommissioning and two more due to enter this phase in the next two years. Overall costs of managing the nuclear legacy look set to rise to over £73billion.

Sources: Douglas Westwood (2008) http://www.dw-1.com/sectors/oil_and_gas/index.php, Oil and Gas UK (2007) http://www.oilandgas.org.uk/index.cfm

Trends and dates

  • Oil and gas Gross Value Added (GVA) represented 13% of all production and manufacturing industries in 2006. GVA per head in oil and gas was £734,000. The industry is highly capital intensive with capital expenditure of £5.6billion.
  • Balance of trade has been in decline since 2001 and slipped into deficit in 2005, although this is likely to have been affected since then by major increases in oil prices.
  • In 2006 there were 30,100 direct industry employees, of which 72% were Scotland-based (the Aberdeen area alone accounts for 38% of industry employment.) The supply chain employs 260,000 across Britain.

Research and development

Research and development expenditure increased 18% from 2005 to 2006 (the latest years from which data are available), representing 1.6% of operating profits. Oil and gas is one of the UK’s strongest industry investors in research and development. Sustainability of the UK Continental Shelf is highly dependent upon the development and realisation of new technologies to maximise recoverable reserves.

The skills gap

For direct employment in Oil and Gas

  • Elementary occupations such as roustabouts only account for 1% of the overall workforce.
  • There is an under supply of people qualified to level 2 and 3.
  • Level 2 and 3 occupations such as process operators, technicians, skilled trades and business administrators account for 55% of the workforce.
Priorities

New discoveries, ongoing operations, planned lifetime extensions for existing operations, decommissioning activities and retirement of the incumbent workforce, are all factors that mean the industry has a sustained recruitment demand with a requirement for skills training and up-skilling of the incumbent workforce.

Keeping the UK Continental Shelf competitive will require exploration and production activities to be carried out, requiring a diversity of people from geoscientist to engineers and from environmental scientists to electricians.

Competition from national and international projects could potentially lead to shortages in oil and gas specialists and those conventional skills required to support the UK. Skills developed in the UK are in demand globally, so the supply of skilled workforce for domestic and international activity requires industry management.