Energy sector 'crossroads' could see UK lose £13bn, new report warns

The energy sector in Scotland is at a critical turning point, with jobs, tax revenues and regional economies all at risk over the coming decades unless action is taken, experts have warned.

Analysis by the respected Fraser Of Allander Institute (FAI) found £13 billion could be lost if the UK’s oil and gas sector undergoes an accelerated - rather than a managed - decline over the next ten years.

This includes around £4 billion in Scotland, or 1.8 per cent of the Scottish economy - similar in scale to the entire spirits and wines industry. For the North East, the gap could amount to around £1 billion, or roughly 5 per cent of the regional economy.

An oil rig in the North Sea | PA

Professor Mairi Spowage, director of the FAI, said: “The energy transition is often framed as a story of new opportunities – and those opportunities are real. But right now, the UK is not doing enough to keep investment, supply chains and high-value jobs here at home.

“The industry is at a crossroads: decisions taken in the next couple of years will shape what the economy of 2030 – and even 2050 – looks like for Scotland, the North East and the UK as a whole.

“If governments want growth, they will need to focus not just on new industries, but on creating the conditions for a managed, orderly transition from our existing energy base.”

The stark warning comes after global energy giant ExxonMobil announced it will close its manufacturing plant in Fife early next year.

READ MORE: Mossmorran closure by ExxonMobil blamed on UK Government policies

Prosper, formerly the Scottish Council for Development and Industry, said this was the latest critical blow to Scottish business to be blamed on UK government policy. It wants Chancellor Rachel Reeves to take action in the upcoming Budget.

The FAI said internationally mobile energy workers are increasingly being deployed overseas to work on projects in more favourable regimes, which could have implications for the economy for as long as the next 25 years.

This “quiet” displacement of activity risks being largely invisible to policymakers, the research institute said. Rather than a visible rise in unemployment, skilled energy workers are finding work abroad or exiting the industry altogether.

Working with scenario data from the energy transition institute at Robert Gordon University, the FAI’s research compared two plausible paths for the UK’s oil and gas sector over the next decade: a “managed decline” and an “accelerated decline”. Under both scenarios, oil and gas activity and employment fall sharply by 2035, but a faster decline has materially larger consequences.

READ MORE: 'Just transition in action'? How Scotland's oil and gas workers are being failed

For the UK as a whole, the gap between the two scenarios is worth around £13 billion in gross value added (GVA) in 2035 – equivalent to around 0.5 per cent of projected UK GDP. For Scotland, the difference is around £4 billion.

Since the 2015 oil price shock, the North East economy has already contracted significantly, the FAI said, with output still around 10 per cent below pre-pandemic levels in 2023.

It warned that without a more stable and competitive investment environment, including a clearer long-term approach to the energy profits levy, or windfall tax, there is a real risk of repeating, and amplifying, this pattern of decline.

Professor Paul de Leeuw, head of the energy transition institute at Robert Gordon University, said: “If we get this right, and we get the activity in the UK with a UK workforce, we can end up with 40 per cent more people working in the offshore energy industry than today and get to net zero much quicker.

“If we don’t make the right decisions now, we might end up with 20 per cent fewer people in the industry. We need to make the right investment decisions and make the right choices to grab this opportunity.”