by Philip Thornton
Exactly three decades ago this month the first barrels of oil arrived by pipeline from the North Sea. Even at the time it was clearly a significant economic event. Harold Wilson, the Labour Prime Minister and his senior Cabinet colleagues watched as the Queen formally opened BP's 130-mile pipeline from Cruden Bay to Grangemouth. Britain had started to mine its own black gold.
Fast-forward to November 2005 and experts in industry and geology are trying to calculate when the oil and gas reserves will finally run out. Perhaps more significantly from an economics perspective, Britain is moving closer to becoming a net importer of its energy needs. It is at this point that the economic impact the North Sea has had on the UK will stop and go into reverse.
These impacts come via growth, the current account, sterling, employment, innovation, corporate profitability and the public finances although, as will be shown, not all operated in a way that would have expected at first glance.
But first, how close is the UK to that point? Analysts have highlighted data from the Office for National Statistics (ONS) showing the UK had a net deficit on oil, importing more than it exported in September of this year (2005) of £201m. This followed a larger deficit of £507m in the previous month.
Since 1975 the oil sector has contributed a substantial amount to UK economic growth. In the latest full year, 2004, oil and gas extraction amounted to £32.0bn or around 3 per cent of the total.
While these were not the first deficits - there was a £79m shortfall in August 2004 - they were the first successive ones since monthly figures were instituted in 1980. It was also the first quarterly deficit for the July to September quarter in 25 years.
The ONS points out the figures might have been distorted by a fire on a major oil rig and by a significant volume of delayed maintenance work, itself linked to the age of some platforms. The Department of Trade and Industry forecasts production output will rise in both 2006 and 2007. Although the UK became a net gas importer in 2004 after a decade of self-sufficiency, The UK Offshore Operators' Association expects Britain could still be producing 65 per cent of its total oil requirements in 2020.
Since 1975 the oil sector has contributed a substantial amount to UK economic growth. In the latest full year, 2004, oil and gas extraction amounted to £32bn or around 3 per cent of the total.
According to ESRC-funded research by Cliff Pratten of the University of Cambridge, the UK's relative performance has improved dramatically over the past quarter-century thanks to North Sea oil, although also to the City of London and foreign investment.
The FTSE-100 index of leading shares is running close to four-year highs. This is partly a reflection of the weights that the oil majors - BP, Shell and Cairn Energy - carry in the index.
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