Shaping Aberdeen – Oil and Gas Summit

The week begins for me at AECC for the Oil and Gas Summit. Below for your interest is the opening speech delivered by the Council Leader, Councillor Jenny Laing.

“The city council has taken the bold initiative of bringing together three tiers of government to the summit to look strategically at the challenges the oil industry faces in a climate of falling prices.

Today is an opportunity for policy and decision-makers in all layers of government to join with senior industry representatives, trades unions and academic experts to develop meaningful and sustainable solutions. Certainly I cannot remember a gathering of so many senior representatives from interested parties in one location at such a critical, and indeed, opportune juncture in the history of the industry and our region.

The reasons for the recent oil price reductions are well documented:
– a reduction in demand from key markets such as China;
– increases in production from the US shale industry; and
– of course OPEC’s decision to maintain production levels even as the price decreased.

But let’s put this in some local historical context. It is almost 50 years since the first Oil and Gas company located to this City. Almost immediately we started to experience the cyclical nature of the oil and gas industry with its health tied to the price of Brent Crude.

Our city and region has been affected by major swings and low points throughout the decades. Most notably when the price dropped to under $10 a barrel in July 1986 from just under $30 in the previous year. And of course there were significant price fluctuations in 1991,1998 and again in 2008.

Each time there is a decline in oil price there is a rallying round of industry, government and the broader oil and gas community to deal with the crisis. Cost reduction, fiscal review and diversification are debated and discussed. Promises are made and some effective short term solutions are put in place. But the price invariably recovers and the momentum to deliver on longer term infrastructure investment falls by the wayside. This means greater reliance on a single industry for Aberdeen and the North East which is of course a risk for all involved.

The story of the Oil and Gas industry is not just about its impact on the city of Aberdeen and the North East but its impact across the whole of Scotland and the UK – through nationwide supply chains and substantial exchequer contributions.

Estimates suggest that this extended Oil and Gas industry employs 450,000 people throughout the UK. So I stand here as a City Council Leader fully aware that there is a complex and interdependent UK wide relationship resting on an industry that radiates outwards from Aberdeen.

Aberdeen competes globally for the investment, skills and resources that sustains the oil and gas industry. We are seen as the only UK based Energy Capital and it is often the case that investment lost to Aberdeen is investment lost to the UK.

But of course the UK is a relatively small player in the World’s oil and gas community. What happens across the rest of the global oilfields has a big impact on our economy.

Aberdeen is a founder member of the World Energy Cities Partnership which is 20 years old this year and now has 21 members including most of the cities that you would expect to be in such an organisation.

We work very closely together and so we have carried out a brief survey on the impact of the downturn across our partner cities and some of the results of this survey will be discussed in the economic impact workshop.

Efforts to anchor the industry and the supply chains locally have been in train since before the oil price fall. Industry and local government have long been concerned with investing in the skills base and infrastructure to keep costs down. Our concerns must be more than about fiscal measures – which are of course vitally important – but we need to ensure the long term sustainability of the industry. We, as a council, need to think about the potential impact locally of a loss to accommodation providers, cancellation of investment in property, loss of business rates from empty offices and any job losses as a result of an extended period of low oil prices.

Council leaders and officers in Aberdeen City and Shire have been thinking strategically about a package of locally led growth proposals that will also begin to address some of the challenges set out in the Wood Review. We know that Aberdeen’s competitors in the oil and gas industry from Houston to Dubai and from Perth to Stavanger have made significant investment in infrastructure. It is important that Aberdeen and Aberdeenshire consolidates and expands its capacity to ensure new and old industries can thrive in the North East of Scotland. Aberdeen based innovators placed 4th in the UK in terms of patents registered per 100,000 of population – but even high performers need support!

However owing to Aberdeen City’s relative prosperity we receive the lowest share of funding of any Scottish local authority.

Despite this we have demonstrated our commitment to growth and infrastructure. And together the two councils have used all available capacity through our ten year capital plans to invest over £1.4bn including a £150m contribution to the Aberdeen Bypass and the City Council’s award winning Strategic Infrastructure Plan.

But pressures to deliver on wider statutory duties and continuing austerity measures mean that we are severely constrained in our ability to help address the urgent concerns of industry. There is evidence that – despite Aberdeen’s booming economy over the last ten years – the lack of enabling public sector investment is holding back investment from the private sector.

In particular a lack of transport capacity is constraining housing and employment. Development of the airport is limited by congested roads and a much needed £400m expansion of the harbour is seeking a public contribution for roads.

That is why in November 2014 we submitted strategic briefing documents to the Scottish and UK governments to kick start discussions for an Aberdeen City Regional Deal to catalyse growth and diversification for existing and new industries. Similar deals have been put in place for City Regions in England and for Glasgow.

These City deals give regions more powers to stimulate growth whilst increasing returns from sources such as tax to central governments or reducing costs associated with developing employment opportunities and skills enhancement. At the core though lies an investment fund to develop infrastructure together with initiatives to stimulate the regional economy in terms of innovation, diversification and internationalisation.

We thank the Secretary of State for Scotland for his leadership in taking this forward with the UK government and thank the First Minister for allowing us to engage with officers of the Scottish Government to develop these proposals. I have also been encouraged by the public support for a City Regional Deal from Scottish Labour leader Jim Murphy, Scottish Conservative leader Ruth Davidson and UK Deputy Prime Minister Nick Clegg.

Never has there been a greater need for this City to work with and receive support from both levels of government. We have an historic opportunity to establish a City Deal for this region which will benefit local people, the industry and indeed the UK as a whole. Let us seize that moment for the mutual benefit of all.”