The Future Is In No Sense Rosy

This is difficult. I really don’t want to appear pessimistic about the future of the UKCS but I’m really struggling to say anything positive that I can put my hand on my heart and say I genuinely believe.

I’ve lived through every downturn since the early 1970s but this time, it’s different and if we don’t accept it's different then the outcome could be really dire. In fact it may be dire anyway.

As a member of the Scottish Government’s Oil & Gas Commission I helped put together a report which I believe was far more comprehensive than Wood’s in that it looked in depth at things like R&D support, the supply chain impact and the whole fiscal setup.  That said, both reports painted a similar and not very pretty picture of the UKCS’s prospects. 

Inevitably then, both reports made somewhat similar recommendations although the Scottish Government report put considerably more emphasis on the importance of maintaining the supply chain and developing a different way of looking at the UKCS based more on the total value of all activities rather than just how much tax revenue the operators paid.

Without doubt, when we completed this report we could still see a way forward but now we might as well tear them both up and start again because the fall in the oil price has changed absolutely everything and much more dramatically than we seem prepared to accept.

To appreciate the difference then consider this: the Scottish Government’s recent oil revenue forecast is for between £2.4billion and £15.8billion over the four years to 2018/19, compared with forecasts of £15.8-38.7billion made in 2014.

That’s a massive and unprecedented fall.

What the industry and government needs to get their heads round is that, whilst some have said recently they think we’re in for a $60-65 oil price for the next couple of years, but it will go up after that are almost certainly being far too optimistic.  

Personally, I think that given current evidence it’s extremely unlikely the oil price will rise significantly anytime soon and there’s actually a very good case for arguing it could fall back.

Why?

Well firstly, I don’t believe the Saudis in particular are going to do anything that might encourage more investment in US shale oil and will regulate their production accordingly.

Secondly, global economic growth remains stuck in a rut and there are genuine concerns over China and the possibility that its growth bubble could burst.

Third, we’re using less oil anyway and there is increasing political pressure over climate change that will lead to even lower use sooner rather than later.

In addition, there are other factors creeping up to bite the UKCS on the rear end.  For example: an impending deal with the Iranians over their nuclear programme and the subsequent lifting of sanctions.

It is already known that Shell and BP have been discussing re-entering the Iranian oil business if the sanctions are lifted because it offers a more affordable and therefore more profitable opportunity than the UKCS.

Oh and there’s Greece which if by the time this piece is published still hasn’t sorted its problems could have a major effect on EU confidence.

Also - what happens if the USA decides to go ahead with exporting shale oil?  If supply goes up then the price most certainly won’t and that’s more bad news for the UKCS. 

The long and short of it is that the North Sea is facing an increasingly unclear future which isn’t actually helped by the lack of a coherent UK energy policy or as yet, any real indication as to what chancellor Osborne intends to do about exploration or other incentives.  

Actually, those incentives to explore even if on a par with Norway may not now be enough. I’m now of the opinion that even reducing taxation to standard corporation levels may actually not be enough.

Without wishing to appear overly dramatic it could well be that what we’re seeing is actually the beginning of the end game for the UKCS arriving far sooner than any of us anticipated.

There are some field development programmes in progress where capital has been committed and these will provide jobs for some time to come. Similarly, a few contractors are picking up some lucrative overseas jobs which will also provide jobs for a reasonable period of time and agencies such as Scottish Enterprise should help them seek out more of those. 

However, the likelihood of achieving that ultimate goal of 23billion barrels is looking somewhat “iffy”.

I think we really need to be honest with ourselves as an industry.  To achieve the real production potential of the UKCS we need – as Professor Alex Kemp said last year - investment, technological innovation, effective regulation and tax incentives.

Of those, at the current oil prices I can only see tax incentives as being the most likely to be implemented. But how far they’ll go and whether they’ll have any real impact is anyone’s guess. Effective regulation can of course only be implemented if the tax incentives catalyse some degree of recovery in investment.

Of course, the real tragedy of all this is the huge loss of potential caused by the rising loss of mainly highly skilled jobs because I just wonder what on earth all those people will do now. 

Some will be lucky and find new positions but in an industry where the problems are global and the job losses are absolutely not just restricted to Aberdeen or the UK then this is not going to be easy.

Can people shift to other industries? 

Well not in Aberdeen they can’t because, as Energy has warned many times before, there has been nothing like enough diversification to create the number of highly skilled jobs needed. Oh and believe me, pedestrianising Union Street isn’t going to make a difference.

Irrespective of how the next year or so develops what we need to do now is set up a “what does Aberdeen do next?” initiative, but with some fresh thinkers; not the ‘usual suspects’.

I’d suggest ACSEF should run it but they’re about as useful as a chocolate fireguard so maybe Aberdeen and Aberdeenshire Councils should do something between them perhaps in league with the Chamber of Commerce. 

We need a viable strategy to start making that transition away from oil & gas and onto whatever we can do next and the sooner the better.

Because, if my instincts are right then we don’t have a lot of time left to think about it.

Sadly of course, due to Westminster’s latest piece of ideological tomfoolery that strategy probably needn’t include manufacturing wind turbines, or towers, or components of any kind!

(First published in the Press & Journal Energy supplement July 2015) 

© Dick Winchester July2015

The Future Is In No Sense Rosy

This is difficult. I really don’t want to appear pessimistic about the future of the UKCS but I’m really struggling to say anything positive that I can put my hand on my heart and say I genuinely believe.

I’ve lived through every downturn since the early 1970s but this time, it’s different and if we don’t accept its different then the outcome could be really dire. In fact it may be dire anyway.

As a member of the Scottish Government’s Oil & Gas Commission I helped put together a report which I believe was far more comprehensive than Wood’s in that it looked in depth at things like R&D support, the supply chain impact and the whole fiscal setup. That said, both reports painted a similar and not very pretty picture of the UKCS’s prospects.

Inevitably then, both reports made somewhat similar recommendations although the Scottish Government report put considerably more emphasis on the importance of maintaining the supply chain and developing a different way of looking at the UKCS based more on the total value of all activities rather than just how much tax revenue the operators paid.

Without doubt, when we completed this report we could still see a way forward but now we might as well tear them both up and start again because the fall in the oil price has changed absolutely everything and much more dramatically than we seem prepared to accept.

To appreciate the difference then consider this: the Scottish Government’s recent oil revenue forecast is for between £2.4billion and £15.8billion over the four years to 2018/19, compared with forecasts of £15.8-38.7billion made in 2014. That’s a massive and unprecedented fall.

What the industry and government needs to get their heads round is that, whilst some have said recently they think we’re in for a $60-65 oil price for the next couple of years, but it will go up after that are almost certainly being far too optimistic.

Personally, I think that given current evidence it’s extremely unlikely the oil price will rise significantly anytime soon and there’s actually a very good case for arguing it could fall back.

Why?

Well firstly, I don’t believe the Saudis in particular are going to do anything that might encourage more investment in US shale oil and will regulate their production accordingly.

Secondly, global economic growth remains stuck in a rut and there are genuine concerns over China and the possibility that its growth bubble could burst.

Third, we’re using less oil anyway and there is increasing political pressure over climate change that will lead to even lower use sooner rather than later.

In addition, there are other factors creeping up to bite the UKCS on the rear end. For example: an impending deal with the Iranians over their nuclear programme and the subsequent lifting of sanctions. It is already known that Shell and BP have been discussing re-entering the Iranian oil business if the sanctions are lifted because it offers a more affordable and therefore more profitable opportunity than the UKCS.

Oh and there’s Greece which if by the time this piece is published still hasn’t sorted its problems could have a major effect on EU confidence.

Also - what happens if the USA decides to go ahead with exporting shale oil? If supply goes up then the price most certainly won’t and that’s more bad news for the UKCS. The long and short of it is that the North Sea is facing an increasingly unclear future which isn’t actually helped by the lack of a coherent UK energy policy or as yet, any real indication as to what chancellor Osborne intends to do about exploration or other incentives.

Actually, those incentives to explore even if on a par with Norway may not now be enough. I’m also now of the opinion that even reducing taxation to standard corporation levels may actually not work. 

Without wishing to appear overly dramatic it could well be that what we’re seeing is actually the beginning of the end game for the UKCS arriving far sooner than any of us anticipated. There are some field development programmes in progress where capital has been committed and these will provide jobs for some time to come.

Similarly, a few contractors are picking up some lucrative overseas jobs which will also provide jobs for a reasonable period of time and agencies such as Scottish Enterprise should help them seek out more of those.

 However, the likelihood of achieving that ultimate goal of 23billion barrels is looking somewhat “iffy”. I think we really need to be honest with ourselves as an industry. To achieve the real production potential of the UKCS we need – as Professor Alex Kemp said last year - investment, technological innovation, effective regulation and tax incentives.

Of those, at the current oil prices I can only see tax incentives as being the most likely to be implemented.

But how far they’ll go and whether they’ll have any real impact is anyone’s guess. Effective regulation can of course only be implemented if the tax incentives catalyse some degree of recovery in investment.

The real tragedy of all this is the huge loss of potential caused by the rising loss of mainly highly skilled jobs because I just wonder what on earth all those people will do now. Some will be lucky and find new positions but in an industry where the problems are global and the job losses are absolutely not just restricted to Aberdeen or the UK then this is not going to be easy.

Can people shift to other industries?

Well not in Aberdeen they can’t because, as Energy has warned many times before, there has been nothing like enough diversification to create the number of highly skilled jobs needed.

Oh and believe me, pedestrianising Union Street isn’t going to make a difference.

Irrespective of how the next year or so develops what we need to do now is set up a “what does Aberdeen do next?” initiative, but with some fresh thinkers; not the ‘usual suspects’.

I’d suggest ACSEF should run it but they’re about as useful as a chocolate fireguard so maybe Aberdeen and Aberdeenshire Councils should do something between them perhaps in league with the Chamber of Commerce.

We need a viable strategy to start making that transition away from oil & gas and onto whatever we can do next and the sooner the better. Because, if my instincts are right then we don’t have a lot of time left to think about it.

Sadly of course, due to Westminster’s latest piece of ideological tomfoolery that strategy probably needn’t include manufacturing wind turbines, or towers, or components of any kind!

 © Dick Winchester July2015

(First published in the Press & Journal "Energy" supplement July 2015)

Well that’s that - it’s over – and I mean it’s really over.

I’ve been living in hope in recent months that we might finally be getting our act together on two important issues.  The first being the stewardship of the oil and gas industry and the second the development of an indigenous renewables technology manufacturing industry.

Following the Scottish independence referendum the former will now remain in the hands of the UK Government who say they will follow the recommendations of the Wood Review including the establishment of the new regulator and revising the fiscal regime.   This will be worth watching because the proposed new style regulator will still be subject to the uncertainties and unpredictability of a Treasury that has a huge and growing public sector debt level to deal with!

However, I don’t want to dwell on the regulatory issue until the new setup has been properly established, the new regulator himself or herself appointed and the promised new fiscal regime agreed. Then and only then will it be possible to judge whether it’s going to work.

That said, I remain seriously concerned about one aspect of the propaganda used to persuade Scotland to vote against independence. During the run up to the referendum Ian Wood asserted very strongly that by 2050 production will have fallen to around 250,000 bbl/day which will of course considerably lower the tax take. 

Of course, he was assuming that between now and 2050 few if any new fields will be discovered or new technologies developed to get more out of existing fields.  In short, he’s saying the strategy he proposed in his own review will fail and that the figure the industry suggested and he accepted, of a potential 24 billion bbl is unreachable or was guff all along. Strong stuff.

However, putting aside for one moment the validity or otherwise of his argument what struck me is that if Wood is right then where’s his Plan B?  Thinking locally, there are around 900 to 1,000 companies and circa 100,000 people reliant on the oil and gas industry in Aberdeen and Aberdeenshire and on the basis of his forecast we could see most of those gradually disappearing over the next 35 years. In fact, Wood said “… the rundown impact will begin to be felt by 2030, which is only 15 years from now"

So the suggestion is that the Aberdeen economy will all but collapse as people’s jobs go and they inevitably move away.  Not all will go of course.  Some will have retired here and some will stay as part of a much smaller supply chain which is still operating internationally.

However, without wishing to be too brutal there is a very good chance that under Wood’s scenario Aberdeen’s economy will shrink dramatically although it may not quite reach the level it was at before the oil industry took off in the early 70s and anyway a lot of what we did then has already gone including shipbuilding and paper production

Of course this wasn’t inevitable. In its June 2014 paper on reindustrialisation the Scottish Government said “Manufacturing is also vital to capturing the opportunities from the transition to a low carbon economy. Traditional manufacturing and engineering skills - such as in the offshore industry or shipbuilding - are transferable to areas such as the manufacture of renewables technology or oil decommissioning.”

In short, it understood the potential of creating an indigenous renewables technology manufacturing industry and to help make this happen was proposing to set up a Scottish Innovation Agency and critically, a Scottish Business Development Bank.

But that’s no longer on the table and without a strategy like this Scotland let alone Aberdeen has little chance of doing anything other than providing the opportunity for others to take advantage of those natural resources which were made so much of during the referendum campaign.  Don’t treat that statement as scaremongering. It’s already a fact. 

There is no indigenous wind turbine manufacturer, we will soon be getting overseas built tidal turbines in the Pentland Firth and most Scottish and UK companies involved in renewables are dependent on foreign investment with many now even majority owned by overseas companies.

However, Wood’s answer to what he sees as Aberdeen’s looming economic problem was to use the recent annual Northern Star Business Awards as a platform to strongly criticise Aberdeen City Council over the “golden opportunity” missed when plans to transform Union Terrace Gardens were rejected.

He claimed that Aberdeen Council showed “virtually no sign” of recognising the economic challenges facing them – and claimed it was “unbelievable” the ambitious project was scrapped.

Now I can certainly support the former but with the best will in the world I still do not understand how on earth spending £140m or so on revamping Union Terrace Gardens would have any impact at all on Aberdeen’s economy and I never have.

Personally, if I had a spare £50m burning a hole in my pocket as Ian Wood seems to have I’d be investing some of it in a couple of university spin-outs I’m aware of and I’d start developing some ideas around high value added clean tech manufacturing. 

I remember clearly Ian Wood saying a couple of years ago that Aberdeen could become the Houston of the East. As I pointed out at the time this was going to be difficult because Houston’s economy is considerably broader based than Aberdeen’s. It didn’t have any of the electronics, pharmaceutical and the other none oil and gas industries that Houston had when Wood made this claim and of course it still doesn’t.

The choice is simple and here finally Wood and I are in broad agreement. We either start putting some real effort into developing a strategy for a post oil Aberdeen or the next generation faces a genuinely grim future. Wood is right that we can’t expect any help from Westminster although I believe we could have from Holyrood if the referendum had gone the other way. 

But there are things we could do and we could start with supporting AREG (Aberdeen Renewable Energy Group) which Wood to my knowledge never has and we could revamp ACSEF which is just another glorified property development programme.  We could also start applying some pressure to all those financial sector outfits that did so well out of oil and gas to make some sensible funds available to entice new industries to Aberdeen to partly replace the Scottish Business Development Bank proposed under independence. Maybe Ian Wood would like to chuck his £50m into that pot if it ever transpired! 

©DickWinchester - first published in the Press & Journal Energy Voice and on line - Oct 2014

The Answer to that Question has to be…..

For 35 of the past 40 years I’ve been in the energy industry I’ve lived in Scotland and have watched Aberdeen and the North East grow and prosper on the back of oil and gas.

In a few weeks though we’re going to be asked to vote on whether or not we want Scotland to remain part of the UK or become an independent country and just like everyone else I’ve had to weigh up in which box I’m going to place my cross. Inevitably, a major contributing factor to which way I vote is how I think the UK Government has managed the opportunity of both oil and gas and renewables so far and how I think a future Scottish Government might manage them if it inherits that responsibility.

During the early 80s I ran the UK ROV and survey group of one of Norway’s then largest subsea contractors.  It’s still around but it’s long become part of one of the other large Norwegian subsea contractors and is perhaps ten times or more the size it was then.

Out to dinner during one of my frequent visits to Norway for meetings (no email & no Skype then) my Norwegian boss turned to me and said “What the heck is the matter with the British Government and your banks – why aren’t you Brits even trying to compete with us Norwegians?

It’s a question that I remember with particular clarity because it alerted me to a problem I hadn’t really considered before.

As Norman Smith – former head of the Offshore Supplies Office and author of “The Sea of Lost Opportunity” - puts it, “in terms of the global market place Britain probably occupies fourth place behind the USA, France and Norway, all of which exhibit a lower proportion of foreign-owned companies and a higher proportion of proprietary technology than the UK.”  This is backed up by Brian Ashcroft of Strathclyde University who determined recently that some 80% of all post-tax profits are remitted abroad.  I find that just utterly astonishing.

But it’s perhaps inevitable because since the early 80s UK Government policy has been based on so called neoliberal economics which includes a laissez faire attitude to company ownership.  Amongst all our major competitors including the USA, this attitude is quite unique.

The result has been that as overseas companies have flooded in then the UK Government – irrespective of the party in power - and the financial sector have been able to avoid having to invest in indigenous companies and technologies because others were already fulfilling the market demand.

This in turn has resulted in the level of public sector energy R&D funding being pathetically low. In fact the UK is now ranked 19^th out of a list of 24 other countries in terms of the percentage of GDP it spends on energy R&D.     

I consider this a major failure on the part of the UK Government compounded by the fact that the Treasury in its effort to suck in as much tax revenue as possible, raised then partially reduced tax levels so managing to achieve the double by introducing both fiscal instability and unpredictability which without a shadow of a doubt is still impacting on operator confidence.  The Scottish Government does however recognise that problem and is looking at mechanisms to guarantee fiscal stability in an independent Scotland.

Of course, there is also the question as to what the benefit of oil tax revenue has actually brought to the country.  It certainly didn’t go into an oil fund as it did in Norway nor was it invested in new industry. Instead, it just got added into the general tax pot.  What an appalling waste.

Considering the longer term future of the energy industry is also important. After all, in many ways this independence referendum and its outcome is more to do with how it will impact on our children, grandchildren and all future generations than it is about us.

Discussing the inevitable eventual run down in oil and gas production, in a recent interview about independence Ian Wood said “It means our young voters must be fully aware that by the time they are middle aged, Scotland will have little offshore oil and gas production and this will seriously hit our economy, jobs, and public services”.  

I disagree strongly with his timescales but if he was so concerned about the future why didn’t Wood ask why it is that Denmark – a country the same size as Scotland - Germany, the USA and elsewhere have already realised this problem and have – for example – developed wind turbine manufacturing companies. Why also are the big tidal technology manufacturers German, Australian and of course American and why did a small Scottish company developing a relatively low output tidal turbine have to turn to a Belgian company for support?  That one really surprised even me! 

And as for solar PV, biofuels and most other renewables technology Scotland and the UK are already well behind the competition. We also know that as far as new nuclear power capacity is concerned the UK is now reliant on French, Japanese or Chinese technology.  Given the UK was once a leader in this technology this is exceptionally disappointing but it’s not surprising given what I said earlier about UK Government’s R&D spend on energy technology. 

  

This really is a disgraceful state of affairs but Wood didn’t even mention it. Perhaps that’s because it reflects badly on the Union!

In contrast though, the Scottish Government’s strategy for an independent Scotland includes reindustrialisation which in part will be based on developing a renewables sector. They at least understand the industrial and commercial potential of renewables whereas Westminster seems ideologically blinded to the opportunity.

So for me the decision becomes easy.  I’ll vote in favour of independence because the evidence is that Westminster desperately wants the tax revenue but is even less prepared to plough any of it back into renewables technology than it was in oil and gas.

Such strategic short sightedness in a competitive global market plan is naive and Scotland can no longer afford it.

(First published in the Aberdeen Press & Journal Energy supplement & on the Energy Voice website Sept 1^st 2014)

The state of UK Energy Research funding

Every now and then we all come across someone whose opinions are difficult to counter and who is so blindingly obviously correct you feel obligated to ensure they’re heard loud and clear so that others can benefit from their thinking as well.

In this instance I’m referring to the exceptionally talented economist Professor Mariana Mazzucato of Sussex University. If you’ve never heard of her then I strongly recommend that if you have any interest at all in innovation then you familiarise yourself with the work she’s been doing on the connections between state support for 

research and the economic benefits that can bring in terms of growth, employment and so on and so forth.   

Mind you, if you’re in the energy sector and you’re not interested in innovation then you’re probably in the wrong job! In her book “The Entrepreneurial State” which I’m hoping I’ll be getting a copy of for Christmas, she explains very lucidly that one of most iconic pieces of modern gadgetry – the iPhone – would not have been developed if it hadn’t been for US Government funding for technologies including the touch screen, the internet itself of course, GPS, micro-processors, speech recognition and others.

She also explains that the smart thing that Apple really did was to recognise the potential of all these technologies and cleverly assembled them in a package which under the iPhone brand has become a global success.   Others have of course done pretty much the same thing since just as successfully as Apple but that doesn’t change the fact that most of the core technologies were developed in US laboratories with US taxpayer’s money.

 

Of course the US Governments role in the development of new technologies goes back a long way.  Their space programme including the historic moon missions resulted in a whole range of new technologies including the ubiquitous Teflon coating used on non-stick cooking pots.

In the energy world the US Government has also been funding new technologies both via their own research laboratories and through collaboration with private sector companies. For example, the US Government through its armed forces is having a positive impact on the development of technologies such as biofuels by funding both its development and its trials.  Biofuels isn’t of course the only area in which the US Government is involved.

Now, what I find interesting about the US approach is that their government believes it should have a major role in technology development and that it considers it as a form of long term investment.  There is then a semi symbiotic relationship between the US Government and its industry which seems to work well and to their mutual benefit. 

It’s not however a perfect relationship in that as Professor Mazzucato points outs “We have socialised the risk of innovation but privatised the rewards”   In other words, companies such as Apple which have benefitted so much from publically funded research haven’t provided a financial return to government.  In fact I would add that in Apple’s case and indeed other companies as well they actually provided a kick in the particulars for their Government by manufacturing so much of their product range overseas in communist China and consequently paying far less tax than perhaps they should have.  

So why am I so interested in all this?  Well apart from the fact that the policies at play here are extremely interesting and I’m (sadly) fascinated by that stuff, it just so happens that Research Councils UK have just published their “Energy Research and Training Prospectus” which is somewhat optimistically entitled “Investing in a brighter energy future”.  So, I read that with a view to trying to understand to what extent it might satisfy Professor Mazzucato’s criteria for the state being the source of a range of new technologies with real commercial potential around which might lead to a UK energy technology revival or – as our glorious Chancellor promised – the rebalancing of the economy.

Bearing in mind that the Prospectus includes the contributions from not just the Research Councils themselves but all other public sector sources including the Technology Strategy Board, the Energy Technologies Institute, and the Carbon Trust and DECC then I was really quite astonished at how small the overall UK budget actually is. 

In fact the estimated budget for 2012 was just £288m which represents 0.025% of GDP which according to the Prospectus authors means the UK has fallen back to 19th position in the IEA rankings and 14^th within Europe in terms of energy RD&D spend per unit of GDP. This puts the UK just behind Italy and ahead of Belgium.  Norway – a small, independent oil rich nation on the other side of the N Sea is 6^th.

The Prospectus also reports that in its 2012 review of the UK, the IEA noted that “the levels of spending do not seem to match the UK’s ambitious climate policy objectives and its world-renowned academic institutions and capability” and recommended that “the UK acknowledge and publicly fund at world-class levels a focused energy RD&D programme to catalyse a broader United Kingdom innovation agenda that reflects the country’s industrial and intellectual comparative   advantage”.   

Some hopes I think because the Prospectus also calculates that the UK would need to increase its current public sector energy Research, Development and Demonstration spend by 70% to bring itself back to the median level of IEA countries, and by 200% to get itself onto the top rank.   They also suggest that “further increases would be necessary if global energy Research, Development and Demonstration budgets were to be aligned with the 2˚C climate change objective and, implicitly, UK climate policy.”

So what do we learn from this?  Well it’s now blindingly obvious that most of what comes out of Westminster in terms of rhetoric on how important carbon reduction, renewables technology and so on and so forth really are is just that – rhetoric not backed up with the wherewithal to make anything worthwhile happen.

It’s also now obvious that promises to rebalance the economy and in particular to build on the new industries of which energy is probably the most important were just hogwash.

Professor Mazzucato understands the clear link between state funded research and economic growth whereas Westminster very obviously either doesn’t or is still ideologically and idiotically opposed to the state doing anything much. 

This attitude is hugely damaging to our industrial potential and harms our academic standing.  It must change. 

(First published in the Press & Journal "Energy" supplement Dec 3013)

Where’s the progress?

I’m worried. I think there’s something going badly wrong with our energy industry and particularly with the development of renewables.  Let me explain why.

Firstly, I was really quite shocked to read in a blog by Prof Brian Ashcroft of Strathclyde University that he believes that around 70% of all oil and gas industry post-tax profits are remitted abroad. According to Ashcroft this amounts to around £19bn which if correct is an astonishing figure which he says “reflects high degree of foreign ownership”

This is scary.  Such an extraordinary level of reliance on foreign ownership of such an important industry can’t possibly be healthy for our economy and perhaps goes a long way towards explaining why – as I mentioned last month – our R&D expenditure is so pathetically low compared with Norway.

Actually, I would bet that in Norway these figures are reversed.  I wouldn’t be at all surprised if over there less than 30% of post-tax profits are remitted abroad because there are a lot less foreign companies.  Different attitude you see. They think strategically and we don’t.

The danger now though is that history is going to repeat itself with the renewables sector.  Looking back over the year since the last All Energy conference and exhibition I’m finding it very difficult to come up with any examples of a UK or Scottish company introducing something new or entering other parts of the market.   I’m now really concerned we’re not just letting our competitors snap up the best bits of what we have developed but we’re not actually competing in sectors that we should be competing in.  The proof of that pudding is course that so many overseas companies are moving in.  If we were competing properly then they would think twice about setting up here.

But then the “system” the government has set up isn’t aimed at creating a renewables industry but developing mechanisms to achieve the various government policy aims on carbon emission reductions, percentage of electricity from renewable sources and so on and so forth.  

So, we tend to set up companies that meet these policy needs and they do things like consultancy, windfarm development planning and of course carbon trading and offering advice on how to reduce a company’s carbon emissions and energy consumption.  That said, some companies are offering important and valuable services such as surveying and subsea remotely operated vehicle support although no heavy lift vessels or cable laying now.

In terms of timing the introduction of policies also never allows for the development of new technologies.  By this I mean that when we develop new policies we rarely consider the industrial potential.  

A classic example of this is the so called Smart Meter. The government’s plan is that every household and business should have one of these.  That means millions of the things will be bought and installed but as it looks now none of them will be manufactured by a UK company. How stupid is that.

In fact the more I read and hear about the attitude of the Treasury in particular I seriously wonder if they care about renewables at all.  I get the feeling that actually the Treasury is keeping its fat fingers crossed that in its forthcoming report the British Geological Survey team will say that there is so much shale gas available that we can completely forget renewables for the foreseeable future.

Another threat to renewables is coming from nuclear.  If the government ever gets its act together and comes to a deal with a potential reactor builder then the cost may well reduce funding for other technologies.   There’s also little doubt that this government would much prefer to have a plentiful supply of nuclear power than anything else even if it means relying on French or even Chinese semi state owned companies to build and operate them.

At the same time though I’m completely mystified over the refusal of the National Grid to balance out the costs of grid connections rather than price them geographically.   Actually, that’s wrong.  I can understand some mindless civil service type – perhaps an ex investment banker -  coming up with that sort of idiotic proposal but what I don’t understand is why the Government didn’t tell them to drop it.  

All that said I do have some good news. Things are now stirring in at least one part of the renewables sector.  The Scottish Government’s Energy Advisory Board of which I’m honoured to be a member has agreed a proposal I developed to set up a forum on Future Fuels. 

The forum consists of a mix of members from academia, industry and government bodies and its aim is to design a strategy for the development of a Scottish renewables fuel industry. That means determining where the best opportunities lie, looking at whether we have the skills to build such an industry and of course working out which fuels provide the best potential.   The forum is “time limited” which means that once its job is done it will disband.

It’s exciting stuff because it does look as if there is much more knowledge and expertise around this topic than perhaps was originally thought. 

Whilst looking at the better known fuels such as ethanol and bio-diesel the forum is also considering butanol, bio-kerosene, hydrogen, ammonia and others and of course a range of production techniques that given the high level of life sciences expertise in Scotland could include synthetic biology. 

We have a head start given the work being done by Argent on bio-diesel, Celtic Renewables on bio-butanol and Scottish BioEnergy on algae applications. This is a good base on which to build.

So whilst I find it intensely annoying we never seem to have any projects that can match – for example – flying a solar powered aircraft across the USA perhaps we’ll soon be able to demonstrate a range of new fuels transport, energy storage and heating.   Not quite as spectacular perhaps but considerably more important.

  (First published in "Energy" in May 2013)