The North Sea oil and gas industry is seeing “positive signals” according to the latest Scottish Government report.
In the newly updated State of the Economy paper, chief economist Gary Gillespie points out that total oil and gas production volumes in Scotland increased by 2.9% in the financial year 2016/17,
And quarterly sales revenues are now approaching pre-2014 levels.
Oil prices crashed following the summer of 2014, leading to widespread job losses and other cost-cutting measures.
Mr Gillespie also points out that the supply chain connected to the oil and gas industry has also seen growth in the first six months of 2017.
On the costs side, due to efficiency improvements, the average cost of producing a barrel of oil in the UK has halved from $30 to $15 and is expected to fall further during 2017.
The cost savings made here have outpaced the global average and had “contributed to positive revenue growth in 2016-17”, the report said.
In addition, Brent crude prices have risen in recent weeks and now stand at around 60 US dollars a barrel – the highest level since spring 2015.
However the report does highlight the issue of Brexit as being a “significant challenge”,
It pointed to an estimate by industry body Oil and Gas UK that reverting to World Trade Organisation rules – which would have to be applied of no deal is reached between the European Union and UK – would more than double the cost of trade at 2016 levels to £1.2billion a year in direct tariff payments.
Looking at the Scottish economy overall, the report said GDP growth in the first six months of 2017 had been “broadly in line with the UK as a whole”.
Scotland’s services sector was the main source of this but the report said the production sector had grown for the first time since the start of 2015, partly because the low value of sterling had boosted exports.
The report states: “Looking ahead, opportunities for growth alongside challenges to the economic outlook, continue to be heavily influenced by the Brexit process.
“Business surveys signal that the economy will grow modestly in Q3.
“Following the fall in the oil price in 2014 and the subsequent challenging years in the oil and gas industry in Scotland, signals are starting to emerge that confidence is building in the industry.
“The positive contribution to growth of sectors linked to the industry in the first half of 2017 reinforce that.”
Economy Secretary Keith Brown said: “It is encouraging to see further evidence that the foundations of Scotland’s economy remain strong, with positive forecasts on growth.
“However, growth is slower than we would like to see and the UK Government’s stance on Brexit continues to present a huge threat to jobs and prosperity in Scotland.
“We will continue to do all we can to support growth in our economy.”
Oil & Gas UK Upstream Policy Director Michael Tholen said: “These positive indicators confirm industry’s relentless focus on efficiency and improving the global competitiveness of the UK Continental Shelf.
“Just as there can be no let up in the efforts of the sector to maximise economic recovery from the basin, Oil & Gas UK continues to set out a constructive agenda to governments to secure urgently needed investment in the basin.
“This includes our proposals to enable tax history to be transferable between sellers and buyers of North Sea oil and gas assets, and we look forward to hearing a positive announcement in the UK Government’s upcoming budget.”
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