Maximising The Return From Oil And Gasoline In An Unbiased Scotland
Oil and gasoline is the largest industrial sector in Scotland, contributing around £22 billion to Scottish GDP in 2012.
– Oil and gas production has contributed approximately £300 billion in tax receipts (2012/13 prices) to the UK Exchequer.
– Scottish GDP per head is round 118% of the UK common when Scotland’s geographical share of North Sea output is included.
– The sector is presently enterprise record ranges of area investment, with complete future funding in companies’ plans value at the very least £100 billion.
– 200,000 individuals are employed instantly or not directly within the sector throughout Scotland and significant progress is anticipated in the following couple of years.
Contribution of Oil and Gasoline to the Scottish Economic system
three.1. The oil and gas industry has been a significant ingredient of the Scottish economic system for over forty years, and can remain so for decades to return.
Three.2. Since production started within the 1970s, the industry has opec oil price today contributed roughly £300 billion in tax receipts (2012/13 costs) to the UK Exchequer, round ninety% of which has been generated by production in Scottish waters. In 2011-12 alone, oil and gas production in Scottish waters generated £10.6 billion in tax revenues, the second highest nominal level of tax revenue up to now 25 years. The annual tax revenues from oil and gas production in Scotland’s portion of the UKCS have averaged over £1,500 per individual in Scotland since 1980.
Three.3. In 2012, oil and gas production is estimated to have contributed around £22 billion to Scottish GDP – making it the biggest industrial sector in Scotland by a big margin. Oil and gas production additionally boosted the UK steadiness of payments by some £40 billion in 2011.[Eight]
three.4. The sector generates huge wealth for Scotland. Together with a geographical share of North Sea output, Scottish GDP per head is around 118% of the UK average. Certainly, when Scotland is assigned a geographic share of oil and gas production, it might have been ranked 8th within the OECD when it comes to GDP per head in 2011, whilst the UK was ranked 17th.
3.5. In 2013 oil and fuel was the largest single sector within the FTSE 100 Index of main companies, and a sector where Scottish companies are leading world gamers.
Three.6. In mild of the substantial opportunities within the sector that continue to emerge, subject funding is predicted to increase to £13 billion in 2013, while whole future funding in corporations’ plans is estimated to now be value a minimum of £100 billion.
3.7. The industry’s contribution to the wider economy is reflected in the extent of employment it helps. The business provides employment for around 200,000 people throughout Scotland each instantly in the trade and by supporting jobs in different sectors of the economic system. This is almost half of the UK employment supported by the sector. Chart 1 illustrates the importance of the oil and gas industry in Scotland. The jobs supported by the sector are equal to eight% of total employment in Scotland.
Chart 1: Employment Supported by Oil and Gasoline Exercise
three.Eight. Current proof additionally factors to optimism for employment prospects in Scotland. Lloyds Banking Group forecast in March 2013 that future development in the sector will create 34,000 jobs in the business and related businesses across the UK over the next two years, with all areas of Scotland expected to benefit. The study also found that Scottish oil and fuel corporations usually tend to anticipate growth than these south of the Border – with 83% expecting to see more enterprise.
three.9. The presence of the oil and gas industry in Scotland has led to the creation of a complicated supply chain to service the offshore business. There is now a cluster of world class firms headquartered in Scotland with strengths in lots of areas including undertaking administration, subsea, effectively-management and training providers.
3.10. There are around 2,000 companies in the oil and fuel provide chain operating in Scotland. The majority of these firms are based around Aberdeen and the North East of Scotland but there are significant pockets of experience all through Scotland. The presence of this world class cluster implies that Scotland is now a major player in the global oil and fuel supply chain, with Scottish companies now working in over one hundred international locations (Chart 2). In 2011, the Scottish provide chain achieved worldwide sales of over £8.2 billion. Nearly half of the Scottish supply chain’s complete sales (£17.2 billion) had been from international exercise, up from a 3rd in 2002.
Chart 2: Worldwide Activity By Geographic Area (2011)
three.Eleven. Remaining oil and gas reserves on the UKCS are substantial, suggesting that exercise within the sector will continue for a big interval. Oil and Gasoline UK estimate that up to 24 billion barrels of oil and gas equivalent can nonetheless be recovered from the UKCS as a whole. This encompasses confirmed, probable, and potential reserves from existing fields and new developments, plus a contribution from further resources arising from marginal or tertiary developments, utilizing improved or enhanced oil recovery strategies in addition to further exploration. Figuring out reserves from remaining resources might be driven by the extent of exploration exercise that is undertaken within the UKCS. The complete vary of forecasts revealed by Oil and Gas UK are summarised in Chart 3 under.
Chart 3: UKCS Reserves by Class
three.12. It is feasible that ultimate restoration may exceed the estimates offered above. For example, Mark Higginson, a senior accomplice of accountants PWC, has stated that “it is doubtless that there might be between 24 and 30 billion barrels of oil equivalent nonetheless to collect from the North Sea.” Many trade consultants also agree that the 24 billion boe could be a big underestimate. The estimates of remaining reserves printed by the UK Division of Power and Climate Change (DECC), whilst reflecting a variety of potential scenarios, counsel that as much as 33 billion boe could nonetheless remain.
three.13. Evaluation by the Scottish Government suggests that the 24 billion boe of reserves have a potential wholesale worth of as much as £1.5 trillion – ten instances the scale of the Scottish economy. This indicates that greater than half of the oil and gas reserves within the UKCS, by worth, have nonetheless to be extracted.
three.14. Drawing on internationally comparable data, Scotland is estimated to have the most important conventional oil reserves in the EU. Chart 4 reveals that Scotland is estimated to account for nearly 60% of complete EU oil reserves. The major investments announced in recent months might have the potential to extend total oil restoration rates. This could increase Scotland’s share of recoverable EU oil reserves further.
3.15. Equal estimates of remaining gas reserves should not available due partially to the vary of various methods used to quantify potential unconventional gasoline reserves. However, separate evaluation estimates that Scotland could have the second largest quantity of confirmed gas reserves, a sub-set of complete reserves, within the EU after the Netherlands.
Chart 4: Share of EU Oil reserves by nation (2010)
3.16. Scotland’s oil and gas reserves signify a big resource for the individuals of Scotland. Evaluation by Professor Alex Kemp and Linda Stephens, at the College of Aberdeen, has estimated Scotland’s geographical share of oil and gas production based on the median line precept. This is the seemingly position given that it has been used to find out other North Sea jurisdictions. Additionally it is per the method taken in 1999 to find out the boundary between Scotland and the remainder of the UK for fishery demarcation functions.
refinery3.17. Different various strategies of demarcation, such because the Civil Jurisdiction Order 1987, could end in a more favourable allocation for Scotland. However, the quantity of hydrocarbon reserves that would belong to Scotland remain broadly constant no matter which of these boundaries is applied. Evaluation by Wooden Mackenzie concluded “that the bulk of UK oil and gas reserves (circa 85%) lie in Scottish waters, and an impartial Scotland would control the vast majority of manufacturing in addition to the most potential acreage” .
Three.18. Kemp and Stephen’s newest estimates are for 2011, where they estimate that Scotland’s share of complete UK oil and gas production was 96% and 52% respectively. Which means Scotland’s share of complete hydrocarbon production was approximately 78% in 2011. By way of future manufacturing, Kemp and Stephen estimate that 98.Eight% of whole oil production and 60% of total fuel manufacturing over the following thirty years from 2011 will come from Scotland’s geographical share of the UKCS.
3.19. Since the 1970s, over 40 billion boe have been extracted from the North Sea.
Chart 5: Oil and Gas Production in Scottish Waters (% of UKCS Total)
3.20. Production levels peaked in 1999, but have declined in subsequent years. This displays a quantity of factors together with subdued investment and production efficiency between 2002 and 2008 – due, in giant part, to poor investor confidence following numerous changes to the fiscal regime by successive UK governments during the earlier decade. As noted inside the Oil and Gasoline UK 2013 Activity report, “Taking into account the 2 to 3 12 months average time lag between funding selections and first production, the lack of recent fields coming on-stream could be attributed to the injury accomplished to buyers’ confidence by the quite a few adverse tax adjustments in the early and mid-2000s.” 
3.21. The latest example of this fiscal instability was the 2011 UK Finances where adjustments to the North Sea fiscal regime were introduced with no prior consultation with the business. The important thing change introduced was a rise within the Supplementary Cost which was increased from 20% to 32%. Tax relief for decommissioning expenditure for Supplementary Cost was additionally capped at 20%.
Three.22. These changes had a substantial influence on the trade by making North Sea projects much less aggressive than in different areas of the world, and increasing the sense of fiscal instability in the North Sea resulting in an uncertainty in investment decisions. These issues are discussed in additional detail in Chapter 5.
Three.23. Regardless of these challenges, the North Sea still produces 1.5 million boe a day, with Scotland remaining the biggest producer of hydrocarbons in the EU. In 2011, Scotland accounted for 60% of EU oil production and roughly a third of EU total hydrocarbon production (Chart 6).
3.24. As an illustrative example, present manufacturing from the Scottish portion of the North Sea alone is enough to meet present Scottish domestic oil demand six times over, and current Scottish gas demand 3 times over. This demonstrates the large export potential of Scottish oil and gas production.
Chart 6: Share of EU Combined Oil and Gas Production by Country (2011)
three.25. With the right incentives, the North Sea will stay a big source of oil and gas production for years to come back. For instance, Oil and Gas UK’s chief govt, Malcolm Webb, states that by means of further changes in the fiscal and regulatory regime we will have the ability to: “…make essentially the most of this worthwhile nationwide asset, the merchandise of which are essential to our daily lives and can underpin our prosperity for a lot of a long time but to come back.” 
three.26. New fields proceed to be discovered, and there remains significant curiosity in North Sea licensing rounds. Current technological advances and high oil prices additionally imply that many fields at the moment are more commercially viable than up to now.
3.27. That is reflected in current developments within the industry which point towards a robust recovery in investment. The newest Oil and Fuel UK Exercise Survey experiences that field funding in the North Sea in 2012 was £11.Four billion, the very best stage for thirty years. That is a significant increase from 2009, the place discipline investment was round £5 billion. This is predicted to extend to at least £13 billion in 2013 and future investment in firms’ plans is now estimated to be worth at least £100 billion.
Three.28. This investment is anticipated to boost North Sea production in the coming years. Oil and Gas UK estimates that manufacturing might attain 2 million boe a day by 2017. As illustrated by Chart 7, this may characterize a 30% improve on current production ranges. As compared, even with the recent restoration in funding within the North Sea, the OBR assume that production broadly remains flat until 2017-18.
Chart 7: UKCS Production Forecasts (mboepd)
three.29. The North Sea can also be experiencing a revival in exploration exercise which is able to help to increase recoverable reserves and prolong production into the long run. The 27th licensing spherical attracted 224 functions, covering 418 blocks – the most important number since such rounds began in 1964.
Chart 8: Application and License for North Sea Exploration
3.30. Exploration activity has also elevated with operators drilling 26 exploration and 25 appraisal wells in 2012 which led to the invention of over 200 million boe. Oil and Fuel UK forecasts a further increase in exploration exercise in future years, with over 130 wells forecast to be drilled between 2013 and 2015. This might make the following three years the most energetic for exploration prior to now fifteen years.
Oil Price Outlook
3.31. There is variation between forecasters on future oil prices. Some, such because the Office for Budgetary Accountability (OBR), anticipate prices to fall steadily in opec oil price today the coming years to roughly $ninety three a barrel in 2017-18. Over the past two years there has solely been one month when costs have fallen beneath $100 a barrel. The OBR assumption is predicated upon a technique which uses the costs implied by futures markets. Others, such because the US Vitality Information Administration and the Worldwide Energy Company, predict that oil prices will rise in future years., Lastly, some organisations predict that costs could rise sharply in future years. For instance, evaluation revealed by the OECD in March 2013 suggests that rising demand in East Asia and continued tight provide could lead to oil costs rising above $one hundred fifty by 2020.
3.32. In recent years, oil prices have exceeded many initial forecasts. For instance, in 2010, futures markets implied an oil worth of round $85 a barrel in 2011 and 2012. Precise costs over this interval averaged greater than $one hundred ten a barrel. Some forecasters expect this trend chemical tower manufacturing installation to continue. For instance, the IMF’s October 2012 World Financial Outlook acknowledged that the dangers to oil costs are “tilted to the upside” and “cannot be simply dismissed”.
3.33. The Scottish Government Oil and Gasoline Analytical Bulletin, revealed on
11 March 2013, offers a detailed outlook for the oil and gas sector, including an evaluation of future oil costs. The evaluation within the Bulletin assumed that oil prices remained at $113 in money terms over the forecast period, this was based on the average price over the 24 months prior to publication.