New research released ahead of the UK's Autumn Budget warns that an accelerated decline of the oil and gas sector could cost the UK economy £13 billion ($17 billion) by 2035 and reduce Scotland's GDP by nearly 2%, with northeast Scotland facing a particularly severe loss of around 5% of its regional economy.

Research Scenarios and Economic Impact

The study by the Fraser of Allander Institute outlines two potential futures for the sector: a managed decline versus an accelerated decline. The accelerated scenario would see activity and employment fall sharply by 2035, with the industry's economic value declining by 78% compared to 2024 levels. This pattern of decline has been amplified since the 2015 oil price shock and due to the maturing nature of the UK Continental Shelf.

The Energy Profits Levy and Investment Climate

The upcoming Budget is expected to address the controversial Energy Profits Levy (EPL), a windfall tax that the industry argues has crushed investment and hastened the decline of the UK North Sea. The government extended the levy to fund renewable energy development and decarbonization as part of its net-zero strategy, despite the absence of the high crude prices that originally prompted its creation in 2022. The research emphasizes that failure to create a stable investment environment will exacerbate the sector's decline.

Workforce and Community Consequences

The report highlights that highly skilled workers are already moving abroad following numerous redundancies, with job losses expected to accelerate to around 1,000 per month through the end of the decade without policy changes. A trade union letter to the Chancellor warned of the significant "human cost" of these decisions, impacting workers, families, and communities across Scotland and Britain, and argued for a moral imperative to slow the "rushed and needless abandonment" of these communities.

UK Energy Security and European Role

Industry advocates argue for developing near-field potential to boost declining UK output and reduce import dependence, with analysts estimating about 13 billion barrels of oil equivalent resources lie near existing infrastructure. The UK government has been studying this potential, with senior officials seriously considering proposals for a bespoke licensing regime. A separate report emphasizes the UK's crucial role in the European energy system as the second-largest oil producer in Europe, with 89% of UK crude production refined in Europe and about 65% of UK oil volumes ultimately returning to serve the UK market, making the country a "linchpin" in European oil supply.

Budget Implications

The Autumn Budget, scheduled for November 26, is seen as pivotal for the future of the UK North Sea. An analyst noted the Budget could "make or break" the sector's future and presents an opportunity for the government to correct policy missteps that have harmed UK energy security and contributed to higher energy prices. The government is also expected to publish the results of a consultation on its pledge to ban new exploration licenses before year-end, which, combined with decisions on the EPL, will determine North Sea investment for years to come.