Difficult times ahead for the oil-and-gas industry in Scotland

There can be little doubt that this year will continue to be a difficult one for the oil-and-gas industry in Scotland - according to Inverness-based economist Tony Mackay. Similar views were expressed recently by Wood Group chief Sir Ian Wood and Shell Expro's Kerst Troost.
In his latest monthly report on the Scottish economy, Mackay predicts that offshore investment will continue to decline for the next two years and, even when the trend is reversed, the level of capital expenditure will be well short of 1998 total.
Mackay says: "Our 2002 forecast of just £ 7.5 bn is only 74 % of the actual 1998 expenditure," and estimates that total investment on the UK continental shelf will have fallen to £ 8.6 bn - around 14 % down on 1998's 10 bn Pound. Further, he predicts that offshore spending by the oil producers will plunge 23 % in 2000 to around £ 6.6 bn.
"We believe it very unlikely that there will be a return to activity levels experienced over the last few years. Indeed, our longer-term expectation is for oil and gas production and offshore expenditure to decline slowly but steadily," says the economist, adding that, even if the oil companies decided to proceed with the development of new fields in the near future, it would take 12-18 months for that to work its way through to actual orders for the fabrication yards and other equipment suppliers.
"There can be little doubt that this year will continue to be a difficult one for the oil-and-gas industry in Scotland. There should be an improvement in the second half of 2001 but we are strongly of the opinion that there will be no return to the high levels of activity experienced recently," he says.

The report sees UK oil production peaking this year, with gas production reaching its zenith in 2001 or 2002, the main reasons being declining production from the more mature fields such as Brent, Forties and Ninian. While many new fields have been developed recently, most of them are small and Mackay says their output will not be sufficient to compensate. And the conclusion: "There will still be an important North Sea oil and gas industry in Scotland in 20 years' time but it will be much smaller than it is today. The peak has been passed."