‘Infrastructure shortfall could cost Jobs and Revenue’- Malcolm Bruce

10.44.47am BST (GMT +0100) Wed 14th Jul 2010

North East MP Malcolm Bruce has expressed concern that thousands of jobs and billions of pounds of oil and gas sector revenue could be at risk unless the local infrastructure shortfall is addressed.

Speaking in a debate in Parliament, the Gordon MP put the case to the Government for additional investment in the North East to help stimulate the energy sector ahead of the Comprehensive Spending Review this autumn. Moreover Mr Bruce outlined what the consequences to UK revenues would be if investment fell due to a lack of sufficient upgrades to the local infrastructure for the oil and gas sector.

Mr Bruce told MPs in Westminster Hall:

“Offshore oil and gas is in a mature phase where it has a more challenging and fragmented role than in the past, but, properly handled, will make a huge contribution to the UK’s energy supply, investment, balance of payments and jobs as well as to the UK’s deficit reduction and economic recovery.

“At the same time we have a growing new offshore renewable energy industry, sharing some of the same technologies and therefore offering diversification which is already heading for £2billion turnover and has the potential to grow – more than taking up any slack in the oil and gas sector.

“Indeed competition between these sectors could be inflationary in spite of the obvious synergies. If this causes cost inflation for offshore vessels, subsea equipment etc it could prejudice marginal investments.

“I believe it is important that UK Ministers understand the problems the North East of Scotland is currently facing to give these crucial industries the infrastructure they are entitled to expect.

“Compared with other energy centres around the world Aberdeen does not live up to its role as Europe’s Offshore Energy Capital. As one correspondent put it: “Rail connections are poor and, if anything, in decline. Road to the north is very poor. Air needs sustaining and key connections improved.””

Figures derived from Oil and Gas UK’s latest economic report indicate a 1 per cent reduction in investment could see:

• The industry spend decreasing by £123m.

• Tax paid in oil revenues would reduce by an estimated to £94m

• The balance of payments reduced by £270m

• An additional £50m lost in exports.

• The industry could also see job losses of 4,400 jobs across the UK.

In his debate Mr Bruce went onto ask the new energy minister for oil and gas, Charles Hendry MP, for the Government to adopt three points of action calling for the Minster to:

• engage with the Treasury over the fossil fuel levy attributable to Scotland and called for a substantial proportion of this to be allocated to infrastructure support in the North East if Scotland

• make allowances using legislation as happened in Orkney and Shetland if necessary, for a modest share of the revenue derived from the oil and gas industry to be earmarked for infrastructure and which would pay dividends in ensuring the maximum long term revenue.

• engage constructively with Ministers in the Scottish administration and to highlight that their failure to support essential infrastructure in the North East is prejudicing the Scottish economy in terms of jobs and investment as well as the UK Exchequer.

Notes:

Figures derived from Oil and Gas UK’s latest economic report outline the benefits the oil and gas sector contributes to the UK. This includes:

• An industry total spend in 2009 estimated at £12.3 billion.

• Tax paid in oil revenues in the current year is expected to rise to £9.4 billion

• The balance of payments benefited by £27 billion

• plus £5 billion in exports.

• The industry sustained 440,000 jobs across the UK.

A 1% decrease in investment would mean loss to the UK of:

• An industry spend of £123m.

• Tax paid in oil revenues reduced by an estimated to £94m

• The balance of payments benefited by £270m

• plus £50m lost in exports.

• The industry could then see job losses of 4,400 jobs across the UK.

Accordingly a 5% decrease in investment would proportionately see greater losses for the UK of:

• An industry spend of £615m.

• Tax paid in oil revenues reduced by an estimated to £470m

• The balance of payments benefited by £1.35bn

• plus £250m lost in exports.

• The industry could then see job losses of 22,000 jobs across the UK.

The figures have been extrapolated by Malcolm Bruce, the original report from Oil and Gas UK is available here:

http://www.oilandgasuk.co.uk/knowledgecentre/economic_report.cfm