Media Centre
Tuesday 6 July 2010
UK Oil and Gas Industry: “An Engine for Recovery"
Oil & Gas UK today (6 July 2010) launched its annual economic report, which highlights the role that the UK’s offshore oil and gas industry can play in accelerating the country’s drive out of recession. The report underlines the substantial contribution which the industry continues to make to the economy as a major source of primary energy supply, jobs, investment, technology and tax revenues.
Malcolm Webb, Oil & Gas UK’s chief executive, said: “As the economy seeks to accelerate out of recession and refocus on manufacturing and technology, the oil and gas industry should be recognised for the important engine for growth that it is. The UK has a clear, comparative advantage in the shape of its oil and gas industry and the country should make the most of the opportunities this presents. Even after more than forty years of production, the industry has the potential for a great future, both in the continued development of the still substantial remaining offshore oil and gas resource and in the commercial activities of its supply chain.”
Domestic oil and gas production in 2009 was 2.4 million barrels of oil equivalent (boe) per day, or 900 million boe over the year. While this represented a ten per cent production fall on 2008, it was greatly influenced by a nine per cent reduction in UK gas demand. Despite this, the UK still remains the 15th largest gas producer and 19th largest oil producer in the world. This year, production is expected to fall to around 2.3 million boe per day, declining at a rate of 5 per cent, provided investment is sustained across the UKCS.
While 39.5 billion boe have so far been recovered from the UK continental shelf (UKCS), between 15 billion and 24 billion boe still remain. Of these 24 billion boe, current investment plans can deliver 5.25 billion boe from existing fields and ongoing investment and new projects account for another 5.9 billion boe.
Mike Tholen, Oil & Gas UK’s economics director and author of the report, said: “Contrary to the general perception that reserves are dwindling fast, the oil and gas produced from beneath our seabed still meets the vast majority of this country’s primary energy needs over the year – 94 per cent of our oil demand and 68 per cent of our gas demand. Importantly, with sustained investment, encouraged by the right business environment, we will have enough oil and gas still to satisfy half of the UK’s needs in 2020.”
The predictable economic environment that currently prevails appears to have restored investor confidence. Fiscal instability and rampant cost inflation hit investment between 2006 and 2009, with capital injections falling from £6 billion to £4.7 billion at the same time as oil prices were rising. Business optimism is now returning. With the prospect of improving economic conditions, capital investment is expected to increase to between £5 billion and £6 billion this year and possibly even further in 2011.
Mr Tholen continued: “The industry has managed to cut its operating costs by 6 per cent in the last year to £6.6 billion, with unit operating costs falling to $12 per barrel. Also, we have seen Governments match fiscal stability with a willingness to tailor the regime to attract new investment, so investors have a more certain backdrop against which to make decisions. This is important because we know that currently companies are considering developments which could lead to £60 billion of investment in new production over the next decade. In this year alone, we could see £16 billion committed to new projects.”
The industry is the largest investor and the largest contributor to national gross value added (GVA) among the industrial sectors of the economy. Indeed, taking into account expenditure on exploration alongside capital and operating spend, the total reached a staggering £12.3 billion in 2009.
Mr Tholen said: “Over the years, for every pound of private investment in oil and gas production, the public purse has received a pound in tax revenue. In the last fiscal year, £6.4 billion was paid in corporation tax which represented almost 20 per cent of the total received by the Exchequer. This year, tax paid is expected to rise by 45 per cent to £9.4 billion, based on an oil price of $78 per barrel, providing over 20 per cent of the total.
Aside from tax revenues, the production of oil and gas boosted the economy in many other ways. The balance of payments was supported to the tune of
£27 billion and the supply chain’s exports of goods and services added more than £5 billion again. Importantly, this year, the industry is providing employment for 440,000 people across the whole country; many of these jobs are highly skilled and very well paid.
Malcolm Webb concluded: “Notwithstanding the economic contribution of UK oil and gas production and its highly qualified supply chain, there is one benefit more significant to the nation: the support it provides to energy security. Currently, the UK relies on oil and gas for three quarters of its primary energy demand and the Government tells us that over the next decade, this will only fall marginally to 70 per cent. It makes no sense at all to import this oil and gas when we have it on our doorstep so we are pleased that the Secretary of State for Energy and Climate Change has recently confirmed his interest in maximising recovery of our indigenous resources. Oil & Gas UK is strongly committed to working with Government departments to ensure this is the case.”
Ends
NOTES TO EDITORS
- Oil & Gas UK is the leading representative organisation for the UK offshore oil and gas industry. Its members, which number over 100, are companies licensed by the Government to explore for and produce oil and gas in UK waters and those who form any part of the industry’s supply chain.
- The full report is available here.
- The launch presentation slides are available here.
- Key UK oil and gas industry facts:
- UK oil and gas production satisfied 94 per cent of oil demand and 68 per cent of gas demand in 2009
- The UKCS has the potential to satisfy half the UK’s oil and gas demand in 2020
- Production of oil and gas boosted the balance of payments by £27 billion in 2009 and the supply chain added more than £5 billion in the export of goods and services
- The industry paid £6.4 billion in corporation tax in 2009/10, almost 20 per cent of the total received by the Exchequer; this is set to increase to £9.4 billion this year
- The UKCS remained the largest investor among the industrial sectors of the economy; capital investment was £4.7 billion in 2009 but is expected to rise to between £5 billion and £6 billion this year
- 440,000 highly skilled, well paid jobs are supported by the UK oil and gas industry
- A total of 39.5 billion barrels of oil and gas have been recovered from the UKCS; further overall recovery is forecast at between 15 and 24 billion barrels.
For further information or to request interviews, please contact:
Sally Fraser
Oil & Gas UK Media Relations
Email : sfraser@oilandgasuk.co.uk
Telephone (office hours): 020 7802 2404
Pager (out of office hours): 07659 183 999
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