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 economy by almost 2%. The research, conducted by the Fraser of Allander Institute, outlines two potential scenarios for the sector over the next decade: a managed decline versus an accelerated decline, with the latter predicted to sharply reduce activity and employment, significantly impacting the economy.

Economic Impact and the Energy Transition

The research emphasizes that while the energy transition presents new opportunities, the UK is currently failing to retain investment, supply chains, and high-value jobs. It argues that for governments to achieve growth, they must not only focus on new industries but also create the conditions for a managed and orderly transition from the existing energy base. A failure to establish a stable investment environment is projected to cause the industry's economic value to decline by 78% from 2024 levels by 2035.

The Energy Profits Levy and Investment Climate

The upcoming Autumn Budget is expected to address the controversial Energy Profits Levy (EPL), a windfall tax that the industry claims has crushed investment and accelerated the decline of the UK North Sea. The government extended the levy to fund renewable energy development and decarbonize power generation as part of its net-zero targets, despite the absence of the high crude prices that originally prompted its creation in 2022. The report warns that policy instability, combined with the maturing nature of the UK Continental Shelf, is amplifying the sector's decline.

Regional Consequences and Workforce Exodus

The economic impact would be most severe in Scotland, where the North Sea industry is concentrated, with a projected loss of around 1.8% of its GDP. Northeast Scotland would be particularly hard hit, facing a loss of approximately 5% of its regional economy. The report notes that a wave of redundancies has already led to highly skilled workers moving abroad, a trend expected to accelerate with job losses potentially reaching about 1,000 per month through the end of the decade without a change in government policy.

Industry and Union Appeals

Industry and trade unions have made appeals to the government. A trade union letter to the Chancellor highlighted the profound human cost of these decisions on workers, families, and communities, arguing for both an economic and a moral case to ease financial pressures on offshore industries and slow the rushed abandonment of workers. The industry has argued for the opportunity to develop near-field potential to boost declining UK output and reduce import dependence, with analysts estimating around 13 billion barrels of oil equivalent resources lie near existing infrastructure.

Government Considerations and UK's European Role

The UK government is actively studying existing North Sea potential, with the Department for Energy Security & Net Zero recently requesting detailed resource estimates for specific discoveries. Proposals for a bespoke licensing regime are being taken seriously, with senior officials holding repeated meetings on the subject. A separate report underscores the UK's crucial role in the integrated European energy system, noting that the UK is the second-largest oil producer in Europe, with almost 90% of its production consumed domestically or in Europe, making it a linchpin in the European oil supply system.

The Stakes of the Upcoming Budget

The Autumn Budget, to be published on 26 November, is seen as a pivotal moment that could "make or break the future of the UK North Sea." It presents the government with an opportunity to correct policy missteps that have harmed UK energy security and contributed to high energy prices. The government's decisions on the EPL and its consultation on banning new exploration licenses will collectively determine the investment landscape for the UK North Sea in the coming years.