November 13, 2015 / 6:35 AM / 4 years ago

UK's oil capital Aberdeen reels from global price slump

ABERDEEN, Scotland (Reuters) - In the bars, boardrooms, hotels and high streets of the Scottish city of Aberdeen, there is one question on most people’s lips: how do you survive a global oil price slump?

BP's North Sea Headquarters is seen in Aberdeen, Scotland January 15, 2015. REUTERS/Russell Cheyne

Oil firms are scaling back their operations in Britain’s oil capital as the tumbling value of the estimated 16.5 billion barrels of oil left in expensive-to-reach undersea fields off the British coast, makes exploration and drilling unprofitable.

The price crash has cost thousands of workers in Aberdeen their jobs, threatening the future prosperity of the city and, for some undermining the economic case for Scotland breaking away from the rest of the UK.

The keenest edge of the crisis is being felt by the workers who were drawn to the remote Scottish city in boom times by the lure of plentiful work and high wages, but now find themselves accepting pay cuts and chasing increasingly scarce employment.

From Monday to Friday, Marcin Kozlowski works for U.S. oilfield equipment provider National Oilwell Varco Inc. On Saturdays he now washes cars in a multi-storey car park.

“The oil price has affected everyone in Aberdeen,” he said, explaining that his monthly income has dropped from 4,500 pounds to 2,500 pounds.

Oil companies have shed around 6,000 jobs, according to Scottish Enterprise, the region’s economic development agency.

This amounts to roughly 2 percent of the working-age population of Aberdeen and its surrounding area, a figure that experts say is likely to be much higher if the impact on flexible labour is included.

“There’s just no jobs. Customers aren’t placing contracts,” said Norman Ross, an unemployed contractor in the skilled field of measuring the value of oil as it is pumped out.

The knock-on effect is hurting the restaurants, hotels and shops which depend on oil workers spending their money.

“We used to have one quiet night a week, now we have three,” says Lisa Kelbie, owner of the Bistro Verde fish restaurant, who has been offering online discounts to attract new business.

ADAPT TO SURVIVE

Oil market veteran Ian Wood, author of a government-commissioned report on North Sea oil, said production could last at least another 30 years if companies become more efficient.

Over the last five decades oil has supplanted almost all of Aberdeen’s other industries. The granite quarry which produced the stone from which much of the city is built closed over 40 years ago, and only one paper mill remains of the 300-year old industry the city was once known for before oil.

Aberdeen is hoping to ride out the crisis by learning from previous oil crashes in the 1980s and 90s.

“The city ... has to regenerate itself if it is to survive,” said local politician Willie Young, highlighting the need for improved road and rail links to keep oil firms in the city.

“We used to be so reliant on Shell and BP and all the rest that when they said ‘we’re stopping exploration’ the phones just stopped ringing,” said Young who helps run the city’s 450 million pound annual revenue budget. “We’ve got the (oil) service industries here now, so the phone is still ringing.”

A spokesman for BP, whose North Sea headquarters are located in Aberdeen, said the firm had probably become smaller in the region but expected to keep operating there “out to 2030 and beyond”.

Aberdeen’s relationship with oil has changed from when fisherman first laid down nets to provide the brawn for drilling rigs in the 1970s, to exporting technical expertise.

    “This is important in giving a cushioning effect because in some parts of the world like the Middle East, they are not cutting back, they are expanding,” said Alexander Kemp, an oil economist at the University of Aberdeen.

For now, Aberdeen’s municipal finances are insulated because almost all of the money it raises from local business taxes is pooled nationally and redistributed by central government. But the longer the oil price stays low, the more money drains away from the city and the harder it is to recover.

INDEPENDENCE DEBATE

The oil price slump comes as Scotland’s 300-year union with England is in question, fuelling one of the main disagreements over whether the country, currently run by the separatist Scottish National Party, could successfully go it alone.

During the campaign for a 2014 referendum, at which Scots rejected independence, oil became a central point of contention, with Scottish government estimates of the potential oil revenue far higher than British ones.

Despite rejecting a split last year, the SNP wants to build public support for a new independence bid in the coming years.

“Scotland’s economy is not dependent on oil and the case for independence wasn’t dependent on oil either,” said SNP leader Nicola Sturgeon.

But, between 2008 and 2012 oil revenues made up an estimated 16 percent of Scottish tax receipts.

“In the short to medium term the collapse in the oil price would have posed a significant threat to the finances of an independent Scotland,” said David Bell, an economist at the University of Stirling, in a recent research paper.

He cited the gap between the Scottish government’s pre-referendum average projection for 2016/17 North Sea oil revenue of 7.5 billion pounds, versus the latest independent British forecast of 0.5 billion.

Opponents of independence say the oil price drop shows Scots were right to reject a breakaway.

“The economic case was very weak last year, and this year, given the oil price, it’s just disastrous,” said Ian Murray, the Labour Party’s only member of British parliament in Scotland.

Despite the referendum loss and the plummeting oil price, the SNP’s popularity has surged, helping it win a record 56 of 59 Scottish seats at a national election last May - including the two historically Labour-held seats in Aberdeen.

“Whilst oil prices have gone down, support for independence has remained constant,” said Anthony Wells, director of political polling at YouGov.

“Obviously if there was a referendum now, it would be one of lots of very awkward questions for the SNP... but there isn’t a referendum now.”

Additional reporting by John Geddie, editing by Elizabeth Piper and Anna Willard

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