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Oil and gas is the greatest show in Scotland, so it’s time the sector got the attention it deserves

Offshore Europe (OE) opens at the Aberdeen Exhibition and Conference Centre on Tuesday, the second-greatest show on Earth for the global oil and gas industry (the Houston version is bigger, of course). In 2007, this spectacular biennial exhibition and conference saw 40,000 people from 110 different countries pass through the turnstiles over the four-day period. Both figures are likely to be exceeded this year, bolstered in part by the strongest showing to date from oil-thirsty China, now an aggressive player in oil diplomacy and the supply chain technology arms race.Over 1500 companies will be exhibiting, hoping to exceed last year’s estimated £300 million’s worth of contracts signed on the back of contacts made.

This privately funded event is worth about £25m in revenue to cash-strapped Aberdeen City and Shire, which makes it especially discreditable that the trade union T&G Unite threatened the event with transport chaos via a bus strike. This could only have damaged the international reputation of Aberdeen and Scotland; a subject of more importance to their own community than their 4% pay claim.

The industry would no doubt have managed to overcome this deliberate obstruction, just as it has overcome somewhat more formidable natural ones on the UK continental shelf (UKCS), and manage to get there in time to hear star corporate and academic speakers debate “energy at a crossroads”.

This year’s programme will reflect the industry’s movement towards greener technologies like carbon sequestration, as well as addressing the traditional questions of where the next trillion barrels of oil are going to come from.

As a curtain-raiser for OE, Robert Gordon University’s Riding the Rapids is a useful and vivid snapshot of top-level industry opinion compiled by Professor Rita Marcella of RGU’s business school, in collaboration with PSN and McGrigors. Its findings, that the “tough” half of the industry considers this recession to be no big deal, was published last week.

What is most striking about the report is that it shows the energy sector centred on Aberdeen to be in far better heart than might be expected, given the combination of collapse, global recession and unprecedented volatility over price. In fact, despite the worst recession for 60 years and the most extreme fluctuations in the oil price, this “qualitative” (ie opinion-tasting) report shows a striking degree of equanimity within the sector, with over half (51%) of the 31 global bosses consulted reporting their companies to be either immune or relatively unaffected by the crisis.

Of the “vulnerable” rest, only 22% considered themselves to be “very badly affected” by the crisis. Also worth noting, given the calibre of information available to these elite respondents, is that 53% of the industry leaders consider current talk of green shoots to be overoptimistic to the point of being “delusional”. That is bad news for the government – held in generally low regard by the oil and gas industry – given Brown’s green shoots-or-bust electoral strategy.

Riding the Rapids concludes with the slightly circular argument that recessions are necessary to allow restructuring to prepare the economy for longer term recovery.

More meaningfully, it celebrates the resilience of an industry whose fundamentals are sound enough, unlike those of hocus pocus-prone “innovators” in certain other major Scottish industries, to withstand global shocks without recourse to the begging bowl.

It is not that the oil industry has shrugged off the crisis. Of all those addressed in the survey, 69% said they had restructured themselves, used fewer contractors, slowed down graduate recruitment, laid people off, cut pay when demand slowed and frozen salaries and bonuses as a pragmatic response to income and margin shrinkage.

Tom Smith, the businessman chair of Aberdeen’s model private-public economic development forum ACSEF, said last week: “This time the oil industry held its nerve in the face of crisis.” If anything, this seems an understatement. This survey points up some not undeserved self-congratulation in the oil and gas supply chain, whose products are in demand and well diversified, and whose management practices and finances are exceptionally sturdy and sound. Although there is some dispute about how much companies learn from these inevitable reversals of fortune, this is an industry which is confident enough, even in the face of unprecedented scares, to operate with “determined buoyancy and sassy chutzpah”.

It has been remarked before that the Aberdeen-based oil and gas industry – “the silicon valley of the global supply chain” as Smith puts it – has never been embraced in the UK and Scotland to an extent remotely equal to the technological and commercial accomplishment it represents. Now that Scotland’s other big two industries – finance and the public sector – are under different sorts of cloud, these grudging attitudes should change.

One legacy of the recent financial crisis that should benefit the sector is that it should have engendered a greater political appreciation of the solid value represented by the £250 billion’s worth of oil and gas still to be produced from the UKCS. And how remiss it was of successive governments to see the industry as a cash cow rather than as an industry worthy of a central, highlighted place in a coherent economic policy.

Oil people are justified in asking why the banking sector should be rewarded with handouts for screwing up, while they struggle to raise cash to raise cash.

As an experiment, readers should monitor the amount of attention that Offshore Europe receives in the mainstream media this week, in the light of the scale and importance highlighted at the start of this article.

A central question for the next UK government will be what can it do for the industry, not what the industry can do for the Treasury? After all, the oil and gas sector pays our bills in the here and now, as opposed to saddling us with debt for our children and grandchildren to pay off.

Source: www.sundayherald.com

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