Contribution to the UK Economy

Balance of Trade

Although UKCS production has declined since 2000, it still makes a very significant contribution to the UK’s balance of trade. With a current trade deficit of £47 billion and high global oil and gas prices, the UK is reaping the benefits of its status as an oil and gas producer. To demonstrate the scale of this industry, if the UK had imported rather than produced the oil and gas consumed in 2005, it would have added an extra £28 billion to its import bill and would have increased the total trade deficit to £75 billion.

The UK balance of trade in oil and gas has been in decline since 2000 but became negative to the tune of £1.6 billion in 2005. Unlike in 2004, net imports of natural gas (£1.2 billion) were not offset by net exports of crude and oil products; instead, the UK was also net importer of crude and oil products, but by a much smaller margin (£400 million).

Figure 8: Balance of Trade – Crude Oil, Oil Products and Natural Gas 1995-2005

The UK balance of trade not only benefits from the export of hydrocarbons but also from the substantial international activity of the supply chain to the oil and gas industry. Providers of oilfield goods and services that once focused on UK oil and gas production are now exporting their considerable technology and expertise globally. Recent SCDI surveys show that oil and gas export activity from Scotland alone, derived for the UK oil and gas supply chain, is estimated to have grown from £2 billion in 1998 to £4 billion in 2004.

Office for National Statistics (ONS) data collection methods mean the export statistics provided do not lend themselves to the ready calculation of international activity of the supply chain. This shortcoming means that the total contribution of oil and gas supply chain and service companies to the UK economy is understated; however, UKOOA is now to commission a new study to assess more fully the impact on the UK’s balance of trade.

Without the presence of the UKCS, most oil and gas supply chain companies would not have emerged in the first place within the UK economy. Many of these same companies have now begun to reach a global market from the UK, building on the technologies and expertise developed in the North Sea. If the supply chain can continue to develop as it has done, the continued increase in their international economic activity will help offset the declining contribution of oil and gas production to the UK’s balance of trade.