Will Aberdeen’s Oil and Gas Overhaul Make Skilled Workers Redundant?

A rich port city is remaking itself for post-oil politics. Aberdeen will now host food festivals and may export green fuel but hosts little heavy industry.

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One hundred and fifty miles northeast of Glasgow, site of the latest attempt by the nations of the world to make progress on the climate crisis, an energy overhaul is under way in the chilly port city of Aberdeen.

It’s laboratory conditions for a lavishly financed “energy transition,” the new phrase meant to signal that the climate crisis is not a balance sheet cost but an investment opportunity. In Europe’s oil and gas capital, civil servants are working hand in glove with friendly faces from the fossil fuel industry.

Arrive by boat and you will notice the expansion under way at Aberdeen Harbour. Investors are pouring £350 million (half a billion dollars) into tripling the number of deepwater berths and widening mooring spots. Seaports are choked up worldwide, but this upgrade is about preparing for future climate-related shocks.

“We’re not in competition with other container ports,” a pleased-looking Bob Sanguinetti, Harbour Board CEO, told the Prospect. Instead, as much as 70 percent of the harbor’s activity feeds Aberdeen’s offshore energy sector, another polite term encompassing both renewables and North Sea oil drilling.

The roomier berths at the harbor can fit the bigger ships that build and service offshore wind farms, and more docking space will take in an influx of renewable machine parts.

Those are already floating in. Scotland’s formidable energy overhaul has powered the U.K.’s increasing reliance on wind energy, with Scots consuming 97 percent of their own electricity from renewables and exporting more abroad.

In the short term, the transition is more of a mixed picture. The U.K. is pressing ahead with its strategy of “maximizing economic recovery” by continuing to extract all profitable oil and gas, which includes upcoming approvals for 18 new oil and gas projects in the North Sea.

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That could change soon. Scottish First Minister Nicola Sturgeon last week broke with the U.K.’s maximalist stance, saying ahead of COP26 that the country should shift away from unlimited extraction. But even if drilling ends earlier than anticipated, workers are apprehensive about the post-oil Aberdeen coming into view.

THE NORTH SEA OIL AND GAS INDUSTRY has employed hundreds of thousands of people and paid around £360 billion to the U.K. Treasury in taxes since 1970. “That has been Aberdeen’s story for the last 50 years,” said Ryan Houghton, a 30-year-old city councilmember. Oil and gas made the city.

In the 2008 financial meltdown, the city was mostly insulated. Aberdeen’s Lehman Brothers moment, Houghton said, did not arrive until gas prices plummeted in 2015. Some Aberdonians lost £4,000 monthly salaries overnight. “You had people putting keys of cars they’d just bought through the mailbox of the retailers, handing them back,” he recalled.

But Aberdeen was still the Scottish city with the highest gross value added per capita. That’s because snaking off its shores is 50 years of legacy equipment for oil extraction.

Drilling companies weren’t going to just write off that capital stock, pack up, and go home. They looked around. Besides oil and whisky, what else occurs as a natural resource in Scotland? Wind and water.

An agreement negotiated between the offshore oil and gas industry and the U.K. was finalized earlier this year. The North Sea Transition Deal says those companies will cut emissions 50 percent by the end of the decade and invest in low-carbon technology.

Firms like British Petroleum (BP) and Shell are proposing to retool existing oil and gas infrastructure for green ends, using technologies that many environmentalists still view as hazardous distractions.

The most controversial combines natural gas with steam at high temperatures to produce carbon dioxide (CO₂) and so-called “blue” hydrogen. The blue hydrogen would eventually be used to heat homes, with lower emissions than natural gas, although Earth systems scientists have recently cast even that modest claim into doubt.

The CO₂ released in the process would be captured and sent offshore to be buried in undersea rock formations. There isn’t much demand for the hydrogen yet, so some propose to use empty oil fields temporarily to store that, too.

Oil executives may be slippery counterparties, but the North Sea is not Saudi Arabia. Productivity is dwindling, and costly new exploration is needed to keep pulling oil out of the aging basin. If the majors can turn hydrocarbons into renewables, they argue, everyone wins.

For now, the idea of using depleted oil fields as real estate for carbon sequestration makes executives’ eyes light up. Instead of using pipelines like a straw to suck up fossil fuels, they would flip the direction of their flow and blow CO₂ into the ground. Shell’s North Sea boss has called it a plan to “put our upstream business in reverse.”

A more proven technology is green hydrogen, which uses renewable energy to split water into hydrogen and oxygen. Here, the big obstacle is cost, but that could come down rapidly, with investments from oil majors. Just last week, Aberdeen announced a new green hydrogen production hub in partnership with BP.

Even assuming technical solutions come through at lower cost, though, labor groups think Scotland may not capture the benefits of the transition.

“There is an appetite here to be part of the manufacturing solution,” said Monica Lennon, a Labour Party member of the Scottish Parliament, “but we’re seeing that opportunity being drained away, and leaking offshore.”

“ENGLAND RULED THE EMPIRE, BUT SCOTS RAN IT,” the old saying went. Before oil defined Aberdeen, the city was a hub for mining, steel, and shipbuilding.

In the 19th century, nicknamed the “Granite City,” Aberdeen was a key node for Scottish quarries exporting the glittering mica-flecked stone to the world. On the eve of the First World War, Scotland was building more than 20 percent of the world’s naval and civilian vessels. World War II defense contracts cemented its status as a shipping powerhouse.

Many Scots blame Maggie Thatcher, who pulled back public investment in everything from coal to car plants, for ending that golden mid-century. Her policies gutted Scotland’s industrial base, though before she dealt the death blow, some sectors were limping along.

Even as manufacturing employment declined, the shock was cushioned by a roaring new industry. Oil came spilling out of the North Sea in 1969, furnishing Scotland with not only cash but new political aspirations.

Scottish nationalists, still a marginal bunch, suddenly had an economic case for independence. One bureaucrat alerted the government that an independent Scotland built on North Sea oil “would tend to be in chronic surplus to quite an embarrassing degree.”

“If, in five years’ time North Sea oil is contributing massively to the UK budget, while the economic and social condition of West Central Scotland continue in the poor state that it is today, it would be hard to imagine conditions more favourable to the growth of support for the nationalist movement,” the report cautions.

The Scottish National Party (SNP) gradually did rise, on the slogan “It’s Scotland’s oil.” But just as oil smoothed over the demise of the great Scottish industries, oil revenues greased U.K. coffers and flowed back into Scotland as social spending, keeping poor Scots more reliant on Westminster and dampening desire for independence.

“Welfare payments derived from North Sea riches were sufficient to keep very large numbers of people in Central Scotland on benefits. Obviously, the benefits were not great, but they were better than extreme stringency,” Scottish historian Tom Devine said.

Scotland wasn’t the sole beneficiary of North Sea oil discovery. Norway, too, began offshore exploration in the ’60s and struck oil in 1969.

Dick Winchester, a Scottish mechanical engineer who spent the ’70s skimming the bottom of the North Sea in deepwater submarines, remembers that time. After he helped to develop Statfjord, one of Norway’s first big oil fields, he noticed that he wasn’t asked to stick around. “Typically Norwegian, once they learned from us how to do it, they went and did it themselves.”

In that spirit, the Norwegian State Oil Company, Statoil, kept an ownership stake in Norway’s oil production, channeling petroleum profits into a sovereign wealth fund. The U.K. originally had its own state-owned oil corporation, Britoil. But the Conservative government sold Britoil to private investors, and British Petroleum took it over in 1998.

Over the next 50 years, Statoil’s revenue dwarfed the U.K. Treasury’s. Norway captured more than twice as much revenue per barrel, one study found, losing out on as much as £400 billion.

That’s just the oil and gas sector. The missed opportunities many Scots mourn are the sectors built on top of that oil money. Statoil became the backbone of Norwegian industry, and today, shipbuilding is still booming.

By contrast, Scotland welcomed foreign oil companies, but failed to capture sector-critical production. The country never produced a seismic exploration giant or a major drilling company. There is no Scottish Schlumberger or Halliburton, making valves and wellheads, motors and pipe connectors. Scotland can claim just one homegrown oil billionaire, and he founded a service-sector firm.

“If you look at the actual main operators in the North Sea—Shell, BP, Total, Equinor, Apache, CNR—they’re all based in other countries, basically. The only one you could say is slightly British is BP, and it’s American-based,” said John Boland, industrial officer for Unite union. “The money always goes back to the base.”

“A Scottish oil field comprises primarily of stuff that we’ve had to import, but we maintain and look after,” Winchester said. Adding insult, installation work is also being done by foreign firms like Stork, based in the Netherlands, and Aker, headquartered in Norway.

Renewable industries represent a second chance at a Scottish championship era, like the one Norway launched on the back of Statoil. But that’s not what Winchester sees materializing.

“It’s nice that people are coming along and using our wind and our ocean acreage,” Winchester said, “but once again, the whole damn thing could bypass us.”

SCOTLAND IS NOW STANDING UP a world-leading offshore wind industry. They are on the cusp of deploying several gigawatts of energy from deep-sea floating platforms tethered to the ocean floor.

As deputy director of energy industries for the Scottish Government, Andy Hogg has overseen much of that enterprise. The cost of wind energy has fallen so dramatically that prices are now competitive with gas.

“We’ve got lots of it, and we want lots more,” Hogg said. But when it comes to making the giant turbines, he said, “we don’t have a competitive advantage in that just now.”

International manufacturers—Denmark’s Vestas, Japan’s Mitsubishi, and America’s General Electric—dominate the market, and he can’t see an easy way to catch up.

“We were slow to deploy it and slow to capture the value chain,” he admitted. Foreign developers and original equipment manufacturers coordinate orders and effectively control the supply chain. “As a result, we lose a lot of the work.”

Hogg would also like to see Scotland competing further down the value chain, fabricating foundations, turbine towers, and cable. But in that labor-intensive work, he said, it’s hard to compete with low-cost producers in the Middle East and China.

With companies vying for contracts to build wind farms off the coast, Hogg says Scotland is now attaching enforceable requirements for developers to show that their supply chains include domestic fabrication.

“We’ve been asking for this now for at least five years,” said Boland, the union rep. “Every time Scottish manufacturing has actually bid for it, they’ve not actually got the contracts.”

Asked about green jobs, Houghton, the city councilmember, pointed to a new partnership with BP that is expected to create 700 high-skilled jobs in hydrogen production.

But he was more excited by the export value of a booming hydrogen market.

“Even if we don’t grow, domestically, hundreds of thousands of jobs, it’d be great to maintain,” he said. “But your massive, your heavy black-smoke industries where you’ve got tens of thousands of people in factories—that’s not really here.”

The oil industry is booming in places like Guyana and Suriname, Houghton added, where, he said, Scotland’s highly skilled oil and gas workers could go. For those who remain, “it’s not just about fabrication yards for building wind turbines, or building a hydrogen hub and maintaining it. There’s also the whole economy that sets up around it.”

THE NORTH SEA BOOM DID PRODUCE at least one Scottish oil billionaire. Sir Ian Wood built an oil field services company, which he ran for 40 years before leaving to helm Aberdeen’s energy transition, which he seems to embody.

“We’re transitioning. This word, ‘transition,’ has become a magic word,” Wood told the Prospect. “Having not established a really strong manufacturing base in anything, we’re back now to trying to develop our servicing capability in the transition activities.”

In 2015, Wood took over an economic-development agency for North East Scotland, seeding it with money to launch Opportunity North East (ONE), a “private sector catalyst” beefing up investments in life sciences, tourism, food, drink, and the digital economy.

Wood admits that there will probably be fewer jobs in renewables than in oil and gas, but he is very bullish on the sector overall. “This is like the early days of offshore oil, honestly.”

ONE has provided funds to the Kindness Bakery, loaning them money for automation to fulfil larger orders. It is sponsoring a new foodie festival that will introduce attendees to regional gelato production. A new biohub promises to make Aberdeen “one of the UK’s most dynamic life sciences locations.”

The same mood has gripped the city. With a bond offering on the London Stock Exchange, Aberdeen’s city council funded a new concert center. They hope to attract crowds since the facility boasts the largest standing capacity in Scotland. The wider berths at the harbor that fit offshore wind servicing vessels, Sanguinetti said, are also built to accommodate big cruise ships.

The old shipbuilding town reinvented itself for the 20th century around offshore oil. If Aberdeen successfully remakes itself around services, tourism, and consumption, city incomes could be buoyed by the export value of renewable fuel and by importing carbon to be stored in large tracts of seabed real estate.

It could also continue to hemorrhage high-skilled workers. The British have a better word for “layoffs,” the euphemism for firing surplus labor. It is being made “redundant.”

“Fundamentally, the Scottish Government has failed to establish a meaningful industrial and manufacturing strategy for Scotland,” said Lennon, the Labour member of Parliament. So far, in her view, programs have been short-term, reactive, and fail to ensure that “workers who transition from some of the most polluting industries don’t get left on the scrap heap.”

For now, there has been neither an end to oil drilling—indeed, a Rystad Energy report this year found the U.K. offers the best fiscal conditions for ongoing oil extraction, beating out Kuwait—nor a just transition for workers.

Naturally, Wood said, drilling and new exploration must continue for now, since if the U.K. stops producing oil and gas, it will import it from countries that are less careful about minimizing emissions.

He shook his head, concerned. “I mean, if we did what some people would like us to do, which is to stop producing oil and gas, we would damage the environment.”

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