February 2, 2016 by Nash Riggins
Times are tough in Aberdeen. Not five years ago, the city’s black gold was bringing in a whopping £3.3bn worth of tax receipts every six months. Investment was flooding in from all over the globe, and sky-high revenues formed the crux of Alex Salmond’s failed bid for Scottish independence. Today, North Sea oil is without doubt the UK economy’s fastest sinking ship.
Thanks to a colossal surge in global supply, oil extraction is no longer viable in Scotland. In fact, a metal drum now costs more than the oil that goes inside of it – and so energy multinationals are pulling out of Aberdeen at breakneck speed. Over 5,500 offshore jobs have already been cut, and BP recently announced it would be slashing another 600 this month. By 2020, analysts reckon the UK’s oil industry will have suffered a net loss of at least 23,000 jobs.
Things are going to get a hell of a lot worse before they get better.
That being said, cutting your losses and admitting defeat is bad politics. That’s why both David Cameron and Nicola Sturgeon have pledged over £500m to prop up the rapidly decaying industry. In some cases, this funding will be spent on long-term infrastructure projects that will drastically improve Aberdeen’s chances of re-establishing some form of business sustainability. But in other cases, we’re just pissing away money for the fun of it.
Take last week, for example: on a tour of Aberdeen’s anaemic port, David Cameron announced the UK Government is set to hand over £20m worth of cash in order to track down new oil fields up north. At face value, that sounds like an inspiring show of confidence. Yet if we sprinkle a bit of global context into the mix, that ‘show of confidence’ is actually a self-inflicted kick in the balls.
Let’s talk about supply and demand. Over the past two years, the cost of Bent Crude has plummeted from over $100 per barrel to just under $30. Why? Thanks to American frackers, we’ve got more of the stuff than we know what to do with. Drivers are justifiably ecstatic about the price drops. Oil-rich countries like Saudi Arabia, on the other hand, are not – and so they’re doing everything within their power to drive prices back up.
How, you ask? By flooding the market with even more oil.
Last month, Opec producers churned out a record-breaking 33m barrels of Bent Crude each and every day like clockwork. Against all odds, this financial Hail Mary has indeed forced a few up-and-coming production sites in America to shut down. That would have theoretically restored oil prices – until Tehran entered the fray.
Iran is currently sitting on top of the world’s fourth-largest supply of oil reserves. Now that sanctions against the country are being lifted, Iranian producers will soon be allowed to sell that supply off to everybody and their mums. That’s bad news for fellow producers. After all, Tehran has got nothing to lose by giving oil away for $20 a barrel, and probably will if it generates new trade partners. In turn, Saudi Arabia’s attempts at market manipulation will all have been for nothing, and the global oil industry will be worse off for it.
So, what does all of this mean for the stormy North Sea? Nothing good.
Until the globe’s top oil capitals nail out a truce and agree to curb production levels, prices will only continue to tumble. That will inevitably lead to more job losses in Scotland, less tax revenue for Holyrood and a financial headache for David Cameron. Bearing that in mind, why on earth would the Prime Minister want to piss away £20m trying to exacerbate that headache?
Oil is a boom and bust industry. The markets will go where they want to go, and private companies will move in or pull out accordingly. In a few years, Bent Crude will probably have shot back up to $100 per barrel, and Aberdeen will be bathing in riches once more. But those riches will only materialise if and when the market corrects itself.
Until then, politicians should know better than to presume that flogging a dead horse will get the UK’s oil industry back up-and-running. If anything, by attempting to jumpstart production with public funds, we’ll simply perpetuate industrial recession. That’s not good business and it’s not good politics. Then again, it does make for a half-decent soundbite.