Economic Report 2001 Index

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Contribution of the Offshore Oil and Gas Industry to the United Kingdom UK Economy The offshore oil and gas production industry continues to make a major impact on Britain's national and local economies. In 2001 oil and gas production accounted for 4.3 million boepd. The industry accounts for 85% of the UK's total primary energy production and is equivalent to 101% of Britain's entire energy requirements. Although Britain's overall trade balance in 2000 was in deficit by almost £29 billion, net exports of crude oil and natural gas were worth £6 billion. The value of UK indigenous crude oil and natural gas production was £23 billion, or some 2.7% of Gross Value Added. The scale of the contribution of indigenous oil and gas underscores the need to ensure optimum recovery of Britain's resources. However, even with sustained investment activity the UK will lose its self-sufficiency in both oil and gas during the current decade.   Figure 1: UK Primary Energy - Production and Consumption in 2000     Figure 2: UKCS Oil and Gas Production, 1970 - 2001   The UK economy has benefited from £175 billion (2001 prices) in taxes since the mid-1960s. In addition to the licence fees payable on the acreage awarded to each group of licensees, the complex array of taxes paid by operators and other licensees currently includes Royalty, Petroleum Revenue Tax (PRT) and Corporation Tax (CT). The latter is ring-fenced around the UKCS so that downstream losses cannot be offset against upstream profits. In 2000 the Government collected £4.3 billion from upstream taxes. Government take from fields ranges from 30-70%. Figure 3 shows how North Sea tax revenues have benefited from the stronger crude oil price in recent years as well as higher production, as illustrated by Figure 2. It is estimated that a sustained $1/bbl increase in the oil price increases tax revenues by about £300 million per year. The latest Treasury estimate (November 2001 Pre-Budget Report) for UKCS tax revenues in 2001 is some £5.4 billion. Appendix 1 describes the UKCS fiscal regime in more detail.   Figure 3: North Sea Taxes (2001 Prices, 1991 - 2002   The industry has invested almost £200 billion (2001 prices) in the exploration and development of the UK offshore sector since activity began in the mid-1960s. Over the last decade the industry represented some 18% of total UK industrial investment. In 2001 total industry expenditure (exploration, development and operating costs) is expected to be close to £8 billion, an increase of £0.6 billion on 2000 expenditures.   Figure 4: UK North Sea Expenditures, 1970 - 2001 (2001 Prices)   Box 2: Apart from satisfying energy requirements (electricity, heat, light, transport), the use of oil and gas continue to play a key role in everyday life. The by-products from oil can be found in clothing and textiles, cosmetics and toiletries. They help make ink for books, newspapers and magazines, paint for artists and decorators, and film for filmmakers as well as the production of CDs and credit cards. They also make chewing gum chewy and are to be found in chocolate. Investment in innovative technology to extend the life of the UKCS has also had other spin-offs, in the form of export opportunities and advances in life-saving techniques, pharmaceuticals and surgical equipment. In addition, there are over one million individual UK shareholders who have invested in UK oil and gas companies, plus many millions more who have a stake in the industry's success through their pension fund investments. Employment The offshore oil and gas industry in the UK supports some 264,800 jobs. This is based on the latest data, from a study by PACEC/CogentSI, commissioned by UKOOA. The largest concentrations of oil and gas related employment are in Scotland, London and the East Coast of England. These regions include the ports and terminals where oil and gas come ashore. However, the importance of the oil and gas industry is not confined to these areas. There are jobs directly and indirectly related to UKCS oil and gas development and production activities in some 6000 companies located in almost every part of the country as illustrated in Figure 5.   Figure 5: The Regional Distribution of Jobs Supported by Oil and Gas Activity in 2001)   Box 3: Estimates of Jobs Supported by the UK Offshore Oil and Gas Industry: (CogentSI / PACEC) Industry data on historic UKCS expenditures are taken from the DTI's Energy Trends. Estimates of current and future expenditures are developed from data supplied to UKOOA by all of the UKCS operators in September 2001. They exclude spending on downstream activities (e.g. refineries, petrochemical plants and onshore pipeline distribution networks). These expenditures are combined with detailed data on the costs and purchase patterns of British business contained in UK Input Output Tables (I/O data) published by the Office of National Statistics, 1998 being the latest year available. I/O data for 1999 and subsequent years are estimated. Direct employment and self-employment data are classified to the mineral oil and natural gas industry. Indirect employment arises: a) in the contractors and suppliers with which the industry deals directly in its operating and exploration activities and b) as these companies call upon sub-contractors and suppliers and related supporting industries. Induced employment results as the incomes earned along this chain are spent, and create jobs in the communities where employees live and beyond. Estimates exclude jobs created when: dividends and profits are spent other than on investment; national and local taxes paid by the industry are put to use; investment is made outside the industry, e.g. by the supplying industry, or on the housing needs of employees. In 2001 the estimated numbers of jobs per £million spent were 26 on exploration, 41 on development and 24 on operations, or 32 jobs per £million across the sector. Industry-supported employment in Scotland represents 6% of the total Scottish workforce. Approximately 10 percent of oil related jobs are offshore, working on or servicing the oil and gas installations, but the majority of jobs are those onshore which are created directly, or indirectly, by the spending and the investment patterns of the industry. Future direct and indirect employment opportunities are likely to be in the areas of information technology as well as in the drilling and sub-sea well-head construction sectors. If the full potential of the UKCS is to be secured, and if the industry continues to develop its skills and expertise by exporting into the global arena, opportunities for engineers, geoscientists and technicians across a range of key skills will exist for the foreseeable future. UKOOA is working with the Offshore Petroleum Industry Training Organisation (OPITO) and the Engineering Construction Industry Training Board (ECITB) to develop projections of employment needs for the UKCS and a web site: http://www.oilcareers.com/ has been established to assist placements. The average age of the work force continues to increase. Yet with state-of-the-art technology required to recover many of the undeveloped discoveries on the UKCS and with oil and gas production set to continue for several decades, as well as ever-expanding opportunities to supply the global industry, career opportunities in the oil industry are very attractive. In February 2002 UKOOA launched its 5 year sponsorship of The Earth Sciences Education Unit at Keele University. The Unit will be able to provide free INSET (in service training for teachers) in Earth Science teaching for schools throughout the country. Early results from a pilot run over the last two years suggest improved exam results follow the training. It is hoped that the programme will help stimulate and enhance young peoples' interest in Earth Sciences.   Figure 6: Employment Impact of the Oil and Gas Industry on the UK