Financial Times: Energy: The Saudi Arabia of wind

By Ed Crooks
Published: September 20 2007 04:59 | Last updated: September 20 2007 04:59

The irony of Scotland’s oil is that the debate over control of the country’s resources has flared up again just as it has become clear that the UK sector of the North Sea is in irreversible decline.

Alex Salmond, the first minister in the Scottish Nationalist administration at the Scottish Parliament, has set taking control of Scotland’s oil and gas resources as a priority. The UK government at Westminster has made it clear it has “no intention” of ceding such control, but the hard truth is that the argument is becoming a historical relic. The days of bumper oil revenues are fading into the past.

Although the UK still produced an average of about 1.6m barrels per day of oil and 80bn cubic metres of gas last year, its output of oil was down 9.6 per cent from 2005, while gas output fell 8.6 per cent. The US Energy Information Administration says the North Sea is one of the world’s fastest-declining oil-producing regions.

At the Offshore Europe conference in Aberdeen in early September – the biggest such show outside the US – the industry did not look like a sector in decline. The show attracted a record 35,000 people, and there were more than 1,300 exhibitors.

Tom Botts, Royal Dutch Shell’s exploration and production vice-president for Europe, described the North Sea as being in “healthy mid-life”, although with some “aches and pains”.

Production in the North Sea is being sustained by a new generation of smaller companies coming in, taking over assets from the majors such as Shell, and squeezing the last few drops of oil and gas out of them.

Increasingly more significant than the actual production, however, is that Scotland’s resources have allowed it to develop world-class centres of expertise in offshore engineering and other related industries, which are as vibrant as they have ever been.

The focus of those companies is on how the advanced techniques developed for the challenging conditions of the North Sea can be exported and deployed elsewhere.

Mr Botts of Shell told the conference: “We’ve got 300 people in our company in Aberdeen working on the toughest technical problems that we have: in Sakhalin, Gabon, Nigeria. Their knowledge and creativity is being applied all over the world.”

Direct flights have recently been set up to connect Aberdeen and Houston; linking the leading oil industry centres of the US and Europe.

The latest survey from the Aberdeen and Grampian chamber of commerce found that 81 per cent of operators and 85 per cent of contractors were working at or above optimum levels in international markets.

A particular strength in Scotland is in sub-sea engineering, a market which has been growing fast as oil and gas companies look to save money by keeping as much as possible of their equipment unmanned at the bottom of the sea.The global market expanded by 25 per cent last year, although growth has slowed sharply this year as projects have been slipping because of shortages of skilled people and equipment.

However, the market is fiercely competitive. Scottish companies come up against rivals from the US and Norway, and probably increasingly in the future from Brazil as well.

David Pridden, chief executive of Subsea UK, the trade association, says: “We have got a real fight on our hands to keep the industry in the country in the next five or ten years.”

One of the most pressing problems is skills shortages. The chamber of commerce survey found that every single oil and gas producer it surveyed and 86 per cent of the contractors were trying to recruit staff.

But in the longer term, another issue will be the need to find alternative sources of work in the domestic market for when the oil and gas finally run out.

Offshore renewables – wind and wave power – are the obvious substitutes: the engineering challenge is in many respects similar to developing oil and gas facilities.

Scotland has been estimated to have 25 per cent of all Europe’s wind; it is the “Saudi Arabia of wind”, as Scottish Renewables, the industry association, has described it.

The group also estimates that wave and tidal power off Scotland’s coasts could generate 20 per cent of the UK’s electricity.

But while onshore wind has been growing fast, there is no offshore wind or tidal power at all in Scotland, and only a tiny amount of wave power.

There are still formidable obstacles to the development of renewable energy in Scotland, not least the lack of enough transmission capacity to get the electricity to users.

One day, Scotland’s winds and waves may deliver a bonanza the way the North Sea once did. The question is whether, as oil and gas production declines, renewable energy will emerge quickly enough to fill the gap.

Copyright The Financial Times Limited 2007

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