Last week, as oil prices threatened to slide below $60, the Press and Journal understandably reported on the potential for damage to the UK’s offshore industry – and rightly so. But it was presented in a balanced, responsible manner, without sensationalising the issue and avoiding words such as panic.
What Energy’s parent is very careful about is talking this incredibly important, strategic industry down in an unwarranted manner. We faced this dilemma a decade ago when the oil industry was in the depths of its very own recession and hitting Aberdeen very hard – late-1990s, to be exact.
It happened to be a slump that everyone else cheered about. After all, the public loves to hate Big Oil, failing to understand its importance to all our lives now and for some time to come.
Indeed, we even discussed the issue internally, having been accused of being excessively negative, which we weren’t. The P&J and its then satellite, Offshore Journal, were simply providing a mirror that reflected the sector’s convulsions as it wallowed in misery. Frankly, the sector was doing a far better job of talking itself into the depths of despair than ever we could, and it took Opec – which, again, everyone loves to hate – to dig us out of the mire, though the cartel’s initial efforts were not as helpful as had been hoped. However, the cut of March, 2009, set the North Sea (and every other oil&gas province worldwide) on the road to recovery, so helping to protect Aberdeen from the UK’s last recession of the early-1990s.
Might Aberdeen get away with it this time? It’s a good question and I don’t necessarily see eye to eye with either Dick Winchester (Both Barrels, Page 8) or Tony Mackay (Economist’s Eye, Page 22) on Opec’s ability to “manage the oil price”. I guess it’s also something of a hobbyhorse of mine.
My view is, so long as the lemming mentality doesn’t set in and everyone keeps their cool, the North Sea will comfortably weather the current nail-biting period. Panic and you are lost.
There are some intriguing parallels between the two oil-price slides. Prior to the late-1990s downturn, Opec raised quotas in November, 1997, just before Asian economies started to falter. A combination of increased supply and falling demand sent prices tumbling to below $10 a barrel the following year before a succession of cuts by the cartel had the desired impact from the petroleum industry’s perspective, if no one else.
This time, Saudi Arabia, the world’s largest oil producer, pledged to raise output by 500,000 barrels a day mid-2008 to calm overheated prices. But what the Opec leadership had not bargained for was the dramatic train of events that has rocked the global economy to its very foundations and threatens further damage.
So, as Mackay reminds in his column, Opec decided on a 1.5million bpd mega-cut (speculation had ranged 500,000bpd to 2.5million bpd).
Maybe, in more moderate times, this shock treatment would have delivered swift results. But it is much less clear this time because of the global financial shambles that daily reveals more horror stories.
Maybe the cartel will be forced to make a further cut of 1million bpd to turn the oil-price tide and drive home the fact that the Gordon Browns of this world can whine and bleat and criticise all they like, but they will not be allowed to get their own way. In any case, I’m of the view that $70 oil is neither here nor there in the Western context, especially as many countries get a much bigger bang from each barrel that they consume. Energy intensity in the UK has, for example, more or less halved since the 1980s.
And there is a further point. Brown must be made to realise that driving oil prices down any further risks wrecking the North Sea effort and internationalisation of what remains a hugely important UK industry, even if domestic oil&gas output is in deep decline.
And given that the sector accounts for about 500,000 jobs and keeps a large chunk of Britain’s engineering capability alive, the PM really must put his brain in gear before making utterances such as the one of October 24, when Opec announced its 1.5million bpd cut.
The PM said he was “disappointed”, which I suppose is an improvement on having previously branded the very existence of Opec as a scandal. Little wonder, therefore, that the outfit last week decided to boycott Brown’s proposed international energy summit to be staged in London on December 19.
He had intended the gathering of heads of state of oil-producing and consuming countries to be a follow-on to the session held in Jeddah, Saudi Arabia, in June. It was claimed in The Times last week that the British Government had, shall we say, been somewhat selective as to which of the Opec leadership had, in fact, been invited to the London summit in the first place.
Perhaps there will be a gathering – speculation is before Christmas. It is in everyone’s interest to gather and parley. But it is also in Brown’s interest or, more correctly, the UK’s not to bully the likes of Saudi Arabia and Venezuela.
Furthermore, it is important not to belittle Opec’s ability to manage the oil price, even if it is anathema to upholders of the so-called free market which, given the amount of regulation required to enable it to work with any degree of fairness, is an oxymoron.
It is idiotic to say that Opec is powerless to do anything about the current slide. Cut deeply enough and there is certain to be a rebound.
Meanwhile, we are, of course, having to get used to another new energy minister – oh, and a new department. Brian Wilson has devoted his column in this issue to the creation of DECC – Department of Energy and Climate Change.
I applaud the decision. Heaven knows, Energy has been shouting long enough about the need to extract energy from the DTI/BERR. Partnering it with climate makes good sense.
However, I hope that the secretary of state in charge, Ed Miliband, and recycled energy minister Mike O’Brien do a decent job and stay in post.
The latter was energy minister for just a few months in the mid-2000s before being moved on.
Incredibly, O’Brien is the 10th appointment to the energy brief made since New Labour swept to power in 1997, and that’s ridiculous. Will he be any better this time around?
Doubtless some of you will bending my ear on that topic in due course.
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