The oil and gas industry has been, is now and will continue to be an enormous asset to Scotland. It has contributed more than £300 billion in tax revenues to the United Kingdom and has turned Aberdeen into a global hub of innovation and engineering ingenuity.
With fields such as Clair and Mariner expected still to be producing beyond 2050, the sector will continue to operate for decades to come. Although the North Sea is a mature basin, there are also frontier regions such as the west of Shetland with huge prospects and a diverse range of development opportunities. However, the current fiscal regime is a barrier to such development.
In 2011, I asked industry and academia to help us devise a modern oil and gas strategy. That strategy set out a clear vision for the industry’s long-term future and it set priorities for future action. It has guided this Government in its actions in relation to its on-going support to the industry.
I will summarise the progress that has been made. First, on enterprise, Scottish Enterprise has already achieved the target set in the strategy to engage with an additional 100 oil and gas companies for account management in the period from 2012 to 2015. SE now has 344 oil and gas companies within its account management portfolio. In addition, Highlands and Islands Enterprise account manages more than 50 companies.
Secondly, on innovation, working with industry leaders such as Paul de Leeuw and Ian Phillips, as well as Professor Albert Rodger of the University of Aberdeen, we launched the oil and gas innovation centre in November 2014. The centre has £10 million of funding over five years, and it is already up and running, developing and delivering solutions to the key challenges that are faced by businesses.
Thirdly, on internationalisation, Scotland’s oil and gas supply chain is an international success story. Total international sales grew to £10,000 million—not £10 million but £10,000 million—in 2012-13. That is an increase of 22 per cent on the previous year. International activity now accounts for just over half of the total oil and gas supply chain sales.
Scotland is now an international hub for oilfield services. For example, we have led the way in areas such as subsea, safety, integrity and supply chain management, giving us a significant competitive industrial advantage. I have led two trade missions to Houston, and I am confident that, due to the support of Scottish Development International, SE and HIE, our supply chain companies are well placed to capture new high-value activity.
Fourthly, we continue to support skills development in the sector. The Scottish Government, Skills Development Scotland and the Scottish Further and Higher Education Funding Council are all working with OPITO and the industry to deliver the immediate and long-term skills needs of the sector. Progress has been made with the establishment of energy skills Scotland and the publication of the energy skills investment plan, which is currently being refreshed and will be published in the coming weeks, taking account of the recent Ernst & Young report, “Fuelling the next generation: A study of the UK upstream oil and gas workforce”, and identifying key actions to be taken forward collaboratively by industry, academia and Government.
Fifthly, on infrastructure, the Scottish Government is targeting investment in local infrastructure in the Aberdeen area—city and shire. For example, the £745 million project to upgrade the Aberdeen western peripheral route will benefit communities and business and remove a serious impediment to economic growth in the area.
Sixthly, on decommissioning, we are committed to supporting infrastructure that will help offshore activity. For example, this Government and our agencies contributed £2.4 million to the nearly £12 million quayside project at Dales Voe South. That will enable Shetland to become a leading decommissioning hub.
I have summarised some of the measures that this Government has taken. We are making the best use of our devolved powers, and we continue to examine every further way in which we can possibly do more. However, it is crystal clear that it is the fiscal regime that needs to change, and the responsibility for that rests with the UK Government.
We have consistently called for a competitive, predictable and stable fiscal regime. In 2011 we published proposals that included the introduction of an investment allowance to help to mitigate the Chancellor of the Exchequer’s shock tax grab in which he raised the supplementary charge from 20 to 32 per cent.
In 2013 we published “Maximising the Return from Oil and Gas in an Independent Scotland” in which we set out the approach that we would take to stewardship. Following the publication of Sir Ian Wood’s interim report in 2013 and the Wood commission’s “Education Working For All! Commission for Developing Scotland’s Young Workforce Final Report” in 2014, we made clear our full support for his recommendations, which included the recommendation that a shadow body should be set up immediately. That did not happen.
We commissioned an independent expert commission to consider how best to maximise the value from the sector. It recommended that the Government consider the total contribution that the industry makes to the economy and society: the total value added. I sent the commission’s recommendations to the chancellor.
Today we have published a paper that sets out the fiscal changes that we believe are necessary to support investment, encourage exploration and ensure that the North Sea is a competitive investment location. That reflects the range of challenges such as declining production efficiency, rising costs and premature cessation of production.
First, we are calling for an investment allowance, as recommended previously by the Scottish Government in 2011 and by the expert commission in 2014. That will simplify the fiscal regime and potentially boost investment by between £20,000 million and £37,000 million.
Secondly, we are calling for a phased reversal of the increase in the supplementary charge alongside a clear timetable to provide clarity for investors. That will provide a strong signal to investors that the North Sea is open for business and could encourage more than £7,000 million of investment. Scottish Government analysis based on industry data shows that those measures can potentially support up to 26,000 jobs and 5,600 jobs respectively.
Thirdly, we are calling for an exploration tax credit. Exploration is already at an historically low level, and failure to address that will mean that we do not maximise the economic recovery of oil from the North Sea.
We will now consult stakeholders on those proposals, but I make it clear that speedy action from the UK Government on those areas is vital. Put simply, those measures must be delivered in the budget this March.
There is a long-term sustainable future for the North Sea, and the Scottish Government is committed to using every lever at our disposal. It is time for the UK Government to follow suit.