Can Aberdeen remain the oil capital of Europe?
Stagnant oil prices and decommissioning projects in the North Sea have led some to believe the party may be over for Aberdeen. But, with the arrival of a new research centre in the city earlier this year, are such glum predictions premature? Ross Davies reports.
Frequent visitors to Aberdeen will be all too familiar with the scrum for hotel rooms throughout the year. So much so, it’s been reported, that those vying for a bed for the night in the Granite City have often ended up having to settle for digs in Glasgow and Edinburgh instead – some 121 and 127 miles away respectively.
Yet, hotel occupancy rates are now on the slide, and are roughly half of what they were during the boom period at the end of the last decade, when surging oil prices attracted energy companies from far and wide to the north-east corner of Scotland.
Similarly, in 2016, Aberdeen – said to boast the highest concentration of billionaires in Britain – dropped from fifth to tenth in the Good Growth for Cities index. At the same time, academics at the city’s university have reported a drain of graduates to south of the border.
Hard times: declining oil prices and job cuts
The city has been buffeted hard by the global oil crisis, where prices have sunk to as low as $27.67 per barrel, as of last January. This resulted in over two thirds of oil and gas firms in the North Sea cutting jobs last year, according to the 25th Oil and Gas Survey.
The same study, conducted by the Aberdeen & Grampian Chamber of Commerce, found 67% of businesses in northeast Scotland had shed staff over the twelve months – faster than at any time in the survey’s history – while more than 40% had slashed pay to cope with plummeting oil prices.
“There is no doubt we have faced an exceptional downturn, perhaps the worst in the history of the UKCS [United Kingdom Continental Shift],” explains James Bream, research and policy director at the chamber.
Not so hasty: the arrival of a new R&D centre
However, in spite of the figures, Bream denies the death knell has been sounded for Aberdeen’s longstanding marriage with oil. There are, he says, indicators that the crisis may be on the verge of a turning point, as evidenced by the opening of a new research and development facility in the city in February.
The Oil and Gas Technology Centre is designed to partly fund projects while acting as a conduit between smaller technology firms and larger oil players. Given the neglect of research projects in recent years, this could be the kick-start the city needs to drive fresh investment in offshore activities.
“We continue to be an oil and gas global centre of excellence, which will be further enhanced with a stronger regulatory environment and technology advancement supported by industry and players such as the new Oil & Gas Technology Centre,” says Bream.
“We are not resting on our laurels. Companies have made hard decisions and are working to ensure they are fit for the future. Aberdeen is investing in infrastructure to ensure it remains an attractive place to live, visit, work and invest.”
Kevin Reynard, a senior partner at PwC’s Aberdeen office, also believes the city’s future is not as bleak as it may first appear. According to a report by the accountancy firm into the industry last year, titled Sea Change, a number of senior executives spoke of “a desire to create one last cycle of success”.
“This would retain and generate jobs, stimulate growth and ensure security of energy supply,” says Reynard. “It can be done.”
And so it begins: decommissioning in the North Sea
For all Bream and Reynard’s optimism, some facts are incontrovertible. While production volumes may have been sustained temporarily – because they were decided before the oil price bust of 2014 – the pipeline of activity is now set to dwindle.
Such is the glaring reality of the dismantling of oil rigs in the North Sea, the University of Aberdeen recently became the first institute in the world to offer a master’s degree in decommissioning. Shell began the not insignificant task of withdrawing its UKCS rigs in February.
Would this suggest that the North Sea’s days as a producing basin are numbered?
It’s not that cut-and-dried, believes Reynard. “Decommissioning is growing as a challenge and opportunity across the industry and could well benefit the North East,” he says.
“Despite the challenges over the past few years, the UK oil and gas industry has demonstrated drive and determination. Its efforts to make operations more efficient achieved a 45% drop in the cost of doing business in 2016.”
The fight for the black stuff: Holyrood vs. Westminster
How Aberdeen sustains itself may well be predicated on politics, too. Just as it has been for decades, North Sea oil exploration is a significant plank in the debate for – and against – Scotland’s independence from the United Kingdom.
In the wake of the Brexit referendum and calls for a second referendum on Scottish sovereignty, the Scottish National Party (SNP) has accused Westminster of mismanaging natural resources in the North Sea.
“The SNP – with the full powers of independence – would act promptly to provide the sort of fiscal support necessary to drive exploration and investment,” claims Mark McDonald MSP, Aberdeen.
“We’d be more concerned about long-term future of the industry, jobs and sustainability, than a London Treasury interested only in tapping the short-term profits.
“The SNP Scottish Government is already doing everything within its powers to support the oil and gas industry and the city of Aberdeen during this challenging time, though happily there are signs now finally that things may be picking up again.”
With the UK gearing up for a general election in June, and Theresa May’s deal-or-no-deal stance on Brexit, talks of a second independence referendum in Holyrood will only get louder. Given that it contributed more that £32bn to the UK’s economy in 2015, the oil and gas industry will remain sharp focal point.
Strange limbo: what next for Aberdeen?
In the meantime, Aberdeen finds itself in a strange limbo: one in which the oil and gas sector may do well to strive for reinvention, says Reynard.
“There is now genuine acknowledgement that the sector needs to collaborate more with itself, the supply chain, government bodies and others,” he says. “There continues to be some frustration over the fundamental issues that need tackling to avert the risk of rapid and premature decline.”
“However, if companies can muster the right capabilities around innovation, if they can collaborate and apply new technologies to automate processes, and can build on the culture of cost reduction and focus on value more - they will be better placed to navigate the challenges they face.”