North Sea Oil and Gas
North Sea Oil and Gas refers to petroleum and natural gas which can be found in, and about the North Sea. As a general rule, most of the gas fields tend to be in the southern part of the North Sea, with the oil fields to the north, but there are exceptions to this. Petroleum production and petroleum engineering along with the associated industries, are major employers in Shetland, and many non-oil businesses have also benefitted from the increased wealth and footfall. On the flipside, the industry has already caused noticeable environmental damage in Shetland, and may also be a factor in global warming, which will bring a rise in sea levels.
The use of the phrase "North Sea oil" can be slightly misleading sometimes. Some of the oil fields are in the Norwegian Sea, Irish Sea, Celtic Sea (part of the Atlantic) or off the west of Scotland. Although most of the older Shetland fields are in the North Sea, some of its so called "North Sea" fields are also to its west, especially some of the newer ones. Various names are used for the Shetland Atlantic oil fields, which are sometimes known as "West of Shetland", "the Atlantic Frontier" or "the Atlantic Margin" amongst other things. "North Sea" is thus used as shorthand for oil and gas in the North Sea, and off Norway and the British Isles. There are also one or two fields located below dry land, but these are in Nottinghamshire, East Anglia, coastal Germany and the Netherlands, and so this distinction is fairly irrelevant to Shetland.
The UK is of course, not the only state to have benefitted from North Sea oil and gas. Most of the countries surrounding the North Sea have some fields. Norway is the most obvious example, but there are also massive refineries in the Netherlands, and to a lesser extent Germany and Denmark have made some revenue from it too. The Republic of Ireland also has some minor fields. Many of the Norwegian oil fields are close to the maritime boundary with the UK, especially those nearer to Shetland, and probably go under it. North Sea Oil is mirrored on the other side of the Atlantic, by reserves off Nova Scotia, Newfoundland and Greenland. It is probable some of these originate in the same geological formations that Shetland oil has. Because they have such small marine territories on the North Sea, neither Belgium nor Sweden has really benefitted though, and they are perhaps the exception.
As Collins Encyclopaedia of Scotland says:
- "Unlike coal, the location of oil and gas reserves appears the work of a capricious Nature anxious to compensate otherwise unfavoured regions of the globe. Typically the largest reserves are found where there is no industrialised economy in desperate need of them, no indigenous expertise to develop them and no guarantee of the political stability essential to attract outside development. The North Sea, although posing a considerable technological challenge, was different. Its energy yield was conveniently placed to meet the vast demands of the UK and European economies, all highly industrialised, reasonably stable, but hitherto dependent on imported oil and gas."<ref name=Collins>"Oil and Gas" in Collins Encyclopaedia of Scotland</ref>
However, in Shetland terms, this is only partially true. While the UK and Europe were industrialised, Shetland had few major industries or power needs of its own, and very little local "indigenous expertise". North Sea oil employed, and continues to employ, a large number of Shetlanders but, where needed, specialist technical expertise has been brought in from elsewhere. Shetland did have some mining and quarrying, but nothing on the scale of Yorkshire or South Wales. It did not have any coal, but it was certainly a more politically stable area than Libya, Iraq or Iran.
(The political ramifications of North Sea oil are discussed later in this article)
Discovery and Reasons for Development
Geologists had long suspected the presence of oil and gas in the North Sea seabed, but until technology improved, they could not prove it, let alone exploit it. Another factor was that the Middle East, Soviet Union, USA and Venezuela provided cheaper, and larger, reserves, which meant that exploration and exploitation of the North Sea fields was not economic for many years. The first signs that the UK was aware that it might have its own reserves came in 1934, when the UK government passed the Petroleum (Production) Act, which vested British reserves to the Crown.<ref name=Collins/> It took almost another thirty years for any significant action to be taken otherwise.
The Middle East is thought to have produced about 41% of the world's oil.<ref name=Britannica> petroleum. (2009). Encyclopædia Britannica. Encyclopædia Britannica 2009 Ultimate Reference Suite. Chicago: Encyclopædia Britannica.</ref> However, the Middle East was, and continues to be, notoriously politically unstable. The relationship of the west with the Soviet Union, Libya, China and Venezuela was also not a happy one at the time.
The setting up of OPEC<ref>Full name Organization of the Petroleum Exporting Countries </ref> in September 1960, by Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela was also a matter of concern for the UK. This was effectively a cartel, and allowed these countries to set their own price for global oil. Members admitted afterward include Qatar (1961), Indonesia and Libya (1962), Abu Dhabi (1967, later as part of UAE), Algeria (1969), and Nigeria (1971) amongst others.<ref> OPEC. (2009). Encyclopædia Britannica. Encyclopædia Britannica 2009 Ultimate Reference Suite. Chicago: Encyclopædia Britannica.</ref> OPEC challenged the west’s economic dominance, particularly when it was highly dependent on petrol, plastics and other petrochemicals. The USA had already developed a number of its own fields, but the UK only started to do so in this period. North Sea oil was more expensive to tap than the fields in the OPEC countries, but the arrival of OPEC, and rise in global oil prices, made it economic to do so. Even today, North Sea oil is not the cheapest to produce:
- "With an estimated 77 percent of the world's total recoverable oil endowment having already been discovered, the remaining 23 percent, mostly located in smaller fields or in more difficult environments, is expected to become ever more expensive to find and to recover. More than 11,000 man-years were required to construct the largest of the North Sea gravity platforms, making capital costs per daily oil production as much as 40 times the costs in the Middle East."<ref name=Britannica/>
In the post-war period, the UK decided to consolidate its territorial waters. One of the first major acts was the annexation of Rockall in 1955, which greatly increased its claims over the continental shelf. <ref name=Collins/> The Netherlands discovered the large Groningen gas field in 1959, but this was onshore. <ref name=Collins/> Nonetheless, it provided a taste of things to come. Britain initially refused to sign the 1958 Geneva Conventions on control of the seabed, but ratified them in 1964. <ref name=Collins/> The UK issued exploration licences in the same year, and British Petroleum made its first commercial discovery of North Sea gas (in English waters) a year later in 1965. The first North Sea oil well was drilled in 1967.<ref name=Collins/> In 1970 BP discovered a major oil field in the North Sea, a hundred miles off Aberdeen, named the Forties. At this point in time, the British Government was the majority shareholder in BP. A mere six months earlier, BP’s chairman had declared that there would be no major finds in the North Sea. <ref name=Collins/> In 1971, the Brent oil field was discovered off Shetland. <ref name=Collins/>
Growth in the 1970s
High production costs stifled initial optimism, but dependence on foreign imports, along with the economic threat of OPEC, made North Sea Oil a kind of insurance and counterbalance. When OPEC decided to raise oil prices in 1973-4, North Sea oil came into its own. <ref name=Collins/> Exploration peaked in 1975, with no less than eighty wells being drilled. <ref name=Collins/> Discovered reserves rose from 500 million tonnes in 1971 to 1800 million tonnes in 1976, as extra reserves to the east of Shetland and Orkney were found. <ref name=Collins/> Those off Shetland to be drilled included Cormorant, Dunlin, Murchison, Magnus, Thistle and Ninian.
Starting in 1978, the construction of the Sullom Voe Oil Terminal was one of the biggest post-war construction projects in the UK. It comprised over a thousand acres, and cost £1.3 billion. <ref name=Collins/> The construction required 7,000 men, most of them from outwith Shetland, and a considerable rise in the Shetland population, at a time when it was slightly over 20,000.<ref name=Collins2>"Shetland" in Collins Encyclopaedia of Scotland</ref> When it was opened in 1981, however, the show was stolen from Shetland itself by the arrival of British Royalty and their attempted assassination by the IRA. Nonetheless Sullom Voe was and continues to be a major object of prestige for both Shetland and the UK as a whole. It even had some unexpected benefits – rugby in Shetland mushroomed, gained a new team, the so called Oil Blacks and a sevens tournament is still held at Sullom Voe. Sumburgh Airport benefitted too, and began to handle over 700,000 passengers a year. <ref name=Collins2/> The boom raised Shetlanders' wages considerably as well, and gave the islands an affluence they had never had before. After the construction phase, a number of the workers left Shetland, but the council gained a great deal of revenue, which it was able to redistribute. The road network and infrastructure were significantly improved. The larger number of people coming and going from Shetland also meant greatly increased ferry and air services to other parts of the UK, and even Norway. Benefits could be felt elsewhere too - in 1993, North Sea Oil in the UK employed an estimated 300,000 people, and over two hundred businesses in Aberdeen were directly or indirectly involved with the industry. <ref name=Collins/>
The Dark Side
After the 1970s, exploration slowed, and and while lower oil prices in the late 1980s, and early 1990s favoured the consumer, they were not good for oil producing states. They were probably one of the major factors in the collapse of the Soviet Union. While this helped put the UK into recession, North Sea oil faced further problems:
- "Proof that the oil and gas industry could equal the worst accidents in coal mining came with the Piper Alpha Disaster on 6 July 1988."<ref name=PAD>Piper Alpha Disaster (1988), Collins Encyclopedia of Scotland</ref>
Piper Alpha killed 167 of the 226 men on board the platform, including two rescue workers.<ref name=PAD/> There were only 62 survivors, of whom one died in hospital and many of the others experienced injuries and post-traumatic stress from their ordeal.<ref name=PAD/> It was felt throughout the North Sea oil industry, and was considered by many to be a national tragedy.
The negative side of oil production was also brought home to Shetland with the Braer disaster in January 1993. Pollution had been a concern for a while, but the Braer was a shock to all. It had been carrying 85,000 tons of light-crude and 5,000 tons of heavy-fuel oil.<ref>Marine Pollution in Environment. (2009) in Encyclopædia Britannica 1993 Year Book. Encyclopædia Britannica 2009 Ultimate Reference Suite. Chicago: Encyclopædia Britannica.</ref> The cost was not human life, as in Piper Alpha, but nature, fish farming and agriculture. Birds and plants were badly affected, and some agricultural fields were contaminated. The fumes were detected as far north as Lerwick. Fortunately there were two mitigating circumstances in the Braer disaster: firstly, the Gullfaks oil being carried was much lighter than the average crude, and secondly, unusually prolonged stormy weather helped to break up the oil spill. One could argue for a third, perhaps, that the ship went down off Sumburgh and not off the west or east coast of Mainland, or in area surrounded by more voes and islands. An oil spill off Sullom Voe would perhaps have contaminated more coastline.
In 1994, there was a further crash in oil prices with Brent Blend reaching a mere $13 a barrel. That put 1994 oil prices, on average, about the same in real terms as those before the first oil crisis in 1973.<ref name=Energy>Petroleum in "Energy." Encyclopædia Britannica 1994 Year book. Encyclopædia Britannica 2009 Ultimate Reference Suite. Chicago: Encyclopædia Britannica, 2009.</ref> OPEC failed to respond to the oil crisis this time, and the largest increases in oil production occurred in the British and Norwegian sectors of the North Sea.<ref name=Energy/>
In 1995, there was a further crisis, when Shell Oil's abandoned Brent Spar oil rig was occupied by Greenpeace for 23 days. This occurred after the North Sea Protection Conference in Denmark and while the rig was being towed to be sunk in the deep Atlantic.<ref>Brent Spar. (2009). Encyclopædia Britannica 1995 Year Book. Encyclopædia Britannica 2009 Ultimate Reference Suite. Chicago: Encyclopædia Britannica.</ref> The rig eventually ended up in Norway. A similar incident occurred in 1997 when Greenpeace occupied BP’s Stene Dee station for a week, when it was being towed to the Foinaven field west of Shetland. An Edinburgh court froze Greenpeace’s UK bank accounts. <ref>"The Environment." Encyclopædia Britannica 1997 Year Book. Encyclopædia Britannica 2009 Ultimate Reference Suite. Chicago: Encyclopædia Britannica, 2009.</ref> There were also rows in 1995, over the precise boundary between Shetland and Faroese waters. <ref>Dependent States and the Atlantic. (2009). Encyclopædia Britannica 1995 Year Book. Encyclopædia Britannica 2009 Ultimate Reference Suite. Chicago: Encyclopædia Britannica.</ref>
It has also been noted that the British military has engaged in operations involving oil rigs and facilities. This is presumably in response to environmentalists, and also in case of any military or terrorist attack. Although the IRA attacked Sullom Voe, it was their only attack in Scotland. More likely, the British government is worried about Islamic or state-sponsored terrorism, or perhaps even a Scottish insurgency.
Whatever the future holds for North Sea oil and gas, it will not last forever. Some commentators suggest that global peak oil has already been reached. As China, India, Malaysia and other parts of Asia industrialise, they too have increased their need for oil, which squeezes further a limited resource. Exploration in the polar regions has already begun. Alaska began to be exploited years ago, but recently exploration in Greenland and even off Antarctica has begun.The UK, and by extension Shetland, may hold some of its fields in reserve as prices rise:
- "[The UK’s] undiscovered resource potential appears somewhat limited, it may require more of its oil output for internal use in the future."<ref name=Collins/>
North Sea Oil as a Political Factor
The discovery of North Sea oil couldn’t have come at a better time for the UK, Scotland or Shetland. The world economy underwent a series of severe downturns and petrol shortages in the 1970s, and despite the USA landing on the Moon in 1969, western dominance in the Cold War was by no means assured. The Korean War was at a ceasefire (and still technically is), but Vietnam War was grinding on, and the USA, Australia and New Zealand were all counting the cost.
The UK had by this point lost most of its Empire – although it was still granting some of its colonies independence – it desperately needed something to fulfil a post-imperial role. As UK heavy industry, manufacturing and mining was undergoing gradual decline (a process that came to a head in the 1980s), the UK economy found itself in a perilous position. The Hard Left was also still strong in the UK in the 1970s, and there were a great number of strikes, riots and the situation in Northern Ireland was perhaps at its worst. The arrival of North Sea Oil not only buoyed up Sterling, it provided new jobs, jobs for technically skilled people such as engineers, architects and mineralogists. It also provided huge revenues to the UK treasury, allowing it to invest in expensive defence projects, and maintain a nuclear deterrent.
It is probably no coincidence either, that in this period, the UK re-stated its claim to Rockall in 1955 (which greatly increased its sea boundaries) and fought the Cod War against Iceland. The Cod War was not just about fisheries, but about the UK trying (and ultimately failing) to deny Iceland's claims to territorial waters.
Scotland shared many of the UK’s social and economic problems, especially where the decline of industry and mining was concerned. Scotland – and Shetland – were also heavily dependent on fishing, another industry that would collapse in later years, although not as thoroughly as mining or steel perhaps. But while oil supported the UK economy, most of the fields were in Scottish waters. The poverty of Scotland in this period, and the over centralisation of the UK on London, led to some serious questioning of Scotland’s position in the UK. On the one hand, some favoured devolution with an assembly (much weaker than the present Scottish Parliament), and on the other the pro-independence SNP was making unprecedented inroads.<ref> In the 1970s and 80s, there was also a low level terrorist campaign by the SRA and SNLA, including the bombing of pylons. This was never as severe as the IRA attacks in Ireland and England, but was still enough to frighten the British State. In subsequent years, these organisations became of little concern. The SNLA still exists, but mostly in the minds of sensationalist journalists, and its leader, Adam Busby.</ref> One of the SNP’s slogans in this period was "It's Scotland's Oil". It was a fairly successful campaign. In 1967, the SNP came close to taking Pollok, and in 1969, Winnie Ewing took Hamilton, and Margo MacDonald took Govan in 1973, both from Labour. In 1979, a devolution referendum was held, and the majority of voters voted "Yes". However, because the turnout was low, the referendum was declared void, and it remained a sore point for many years. (Whatever the overall result was, it seems fairly clear that Shetland itself voted for a definite "No".)
A secret dossier created in 1975, the McCrone Report revealed that Scotland would have one of the strongest currencies in Europe, had it become independent, partly on the basis of these oil revenues.<ref name="BBC 1">Papers reveal oil fears over SNP on BBC co uk</ref> It only came to light in 2005, as a result of a Freedom of Information request.
A new future for Shetland?
Shetland’s role in oil-related politics was different again. Shetland never had any heavy industry to speak of, unlike central Scotland or northern England. Fisheries were, and continue to be an issue. Up to the discovery of North Sea oil, it had been experiencing depopulation for decades. Some of this was due to Clearances, some to emigration to the Colonies (which had been heavily subsidised and encouraged) and some just due to the lack of work. The arrival of North Sea Oil had a big effect on Shetland, perhaps more noticeable than any other area of the UK, even Aberdeen. Oil too, played a great role in Shetland politics. It would allow the council to provide much better services. It also led to questioning of Shetland’s relationship with Scotland and the UK. The Shetland Movement used it as an argument for Shetland devolution. Some English politicians and Scottish unionists, saw Shetland as an opportunity to head off Scottish nationalism, pointing out that quite a few of the Scottish fields were in Shetland waters. There was a highly questionable claim made that Shetland would be better represented by a government in London, than one in Edinburgh. Many Shetlanders were persuaded by this argument, however, and this partially explains the strong “No” vote in 1979. Some people even said that Shetland would be better off remaining in the UK, if Scotland left it. But it was never truly explained how London, which was hundreds of miles further away from Shetland, and even less aware of it than Edinburgh, would serve Shetland any better. It was merely the status quo. At this point, Shetland’s only political representation at Westminster was a single MP, which it shared with Orkney.
Despite the questions raised by North Sea Oil, Shetland has consistently returned Liberal, and later Liberal Democrat MPs and MSPs. At local level, there are still a number of independent councillors, and no real Shetland parties along the lines of the Faroese ones.
Thatcherism, Yuppies and the Falklands War
North Sea oil was a major factor in Margaret Thatcher's success, although she was not popular in Scotland. It has even been argued that her interest in the Falkland Islands was partly driven by suspected oil fields off it.<ref>There appear to be deep water oil fields off the Falkland Islands. The Falkland oil fields would be fairly similar in nature to the fields to the west of Shetland in the Atlantic on the continental shelf. New rigs in such areas use less labour, but have problems such as rough weather and being in deep water, or deep in rock. Presumably expertise in these areas off the west of Shetland could be transferred to these fields. Curiously, a survey of people in London at the beginning of the Falklands War suggested quite a few of them thought the Falkland Islands were off Scotland. Presumably they were confusing them with Shetland.</ref> North Sea oil also helped create London’s yuppies, as North Sea oil, allowed the UK stock market to become of ever increasing importance to the UK economy. In 1981, North Sea Oil provided 4% of the UK's GDP, 12 billion to the UK economy, and six billion to the UK treasury.<ref name=Collins/>
Another unfortunate consequence of North Sea oil, in the 1980s, was that the UK ended up with fairly high inflation.
Other political factors
As yet, the Scottish Parliament has little say over the North Sea Oil Industry.
In political terms, it is also worth mentioning the Green movement. Although this has not attained great popularity within Shetland itself, it has grown significantly in the UK, and the west. Oil spills, such as the Braer disaster have made people ever more aware of the dangers involved to the environment. Oil, natural gas, and other hydrocarbons have also been implicated in climate change. If the polar ice caps continue to melt, the sea level will rise, and this will have disastrous consequences for Shetland, that may outweigh oil benefits.
A post-oil future?
Perhaps the only definite prediction that can be made is that North Sea Oil and Gas will run out at some point. The big question is what oil producing areas such as Shetland and Aberdeen will do when this happens. Sadly, it is clear that a great deal of the UK’s oil revenue has been squandered, and has not been spent on the areas that need it most such as rural areas, ex-mining areas, steel towns and the so called Industrial Coffin in the English Midlands.
A second problem is that of renewables. Shetland has more than enough natural energy for itself, and to sell. Wind, wave and tidal energy are all possibilities. However, these too come with opposition, especially in the case of wind farms, which are controversial and divisive.