Here's the Biggest Loss for Scotland Since Independence FailDonal Griffin
In Aberdeen, a city built out of granite on Scotland’s North Sea coast, a diamond merchant checks the price of oil every day.
Until recently, the dealer, Oscar Ozdaslar, had been accustomed to North Sea oil workers stopping in to buy 3,500-pound ($5,260) diamond rings and earrings in his store on Union Street.
“This Christmas was very quiet compared to the Christmas before,” said Ozdaslar, 50. “The oil guys didn’t come in.”
Just six months ago, Aberdeen was the economic linchpin of Scotland’s campaign to split from the U.K. as oil traded above $100 a barrel. In the wake of the independence referendum’s failure, it serves as a microcosm of how crude’s slump to nearer $50 is hurting cities from Calgary to Kuala Lumpur.
“Aberdeen has been the focus of a classic oil boom,” said Gordon Hughes, a professor of economics in the University of Edinburgh and a former energy adviser to the World Bank. “There’s no doubt that the city will go through a bad period now that it’s over.”
What’s more, the North Sea basin is among the most expensive in the world from which to extract oil. About 20 percent of U.K. production is “uneconomic” at $50 a barrel, trade group Oil & Gas U.K. says. After rallying this week, brent for March settlement traded at $57.72 a barrel on the London-based ICE Futures Europe exchange on Friday.
BP Plc Chief Executive Officer Bob Dudley said this week it feels like the 1980s when he was living in Aberdeen working as an artificial lift engineer for Amoco before it merged with BP. Prices fell about 70 percent in a few months after Saudi Arabia increased production and didn’t recover until 1990.
Regions worldwide that depend on the industry are having an “enormous shock,” he said in an interview with Bloomberg Television.
At Cafe Boheme, a French restaurant across the street from Ozdaslar’s jewelry store, customers including Royal Dutch Shell Plc canceled about 30 Christmas bookings in December, said Dominique Mancellon, who owns and runs the eatery.
Staff from companies including Shell, Statoil ASA and Petrofac Ltd. make up about half of his customers. Sales will fall about 10 percent for the 12 months through July after increasing every year in the past decade, he said.
“If the price of oil stays down, we’ll have to be very careful about how we run our business,” said Mancellon, 56, as he prepared cheese plates and glasses of white wine.
The fillet steak, which costs 28.50 pounds and was a regular order for oil workers, has declined in popularity, Mancellon said. A white wine from Chateau Mont-Redon from his native Provence region going for more than 70 pounds a bottle was also popular before the oil rout. Sales are now down about 60 percent as diners choose the house wine instead.
The prospect of a slump has darkened the mood in a town where most of the buildings already are a dull grey and the sun sets by 4 p.m. in January.
In the Crown & Anchor pub next to the city’s port, oil contractors up from England sip pints of beer and talk about the chances of keeping their jobs.
“If it continues to stay that low for a long time, then we’re all in trouble,” said Jules Gardner, 52. “The oil companies and producers will just cut, cut, cut.”
Petrodollars have sloshed around the Aberdonian economy since companies started pumping oil from the North Sea in the 1970s, transforming it into one of the wealthiest towns in the U.K. The industry supports about 133,000 jobs in the northeast of Scotland, or about half of all those employed in the region, according to the local chamber of commerce.
Before the oil price accelerated its decline, the city’s fortunes were central to the debate about Scotland’s future in an independence referendum on Sept. 18. Voters decided by 55 percent to 45 percent to remain in the U.K.
Since then, talk has shifted away from the Scottish nationalists’ claim that the city would help underpin Scotland’s economy and onto what can be done to protect jobs. At least 11,000 North Sea jobs are at risk, according to the Aberdeen & Grampian Chamber of Commerce.
Scottish National Party leader Nicola Sturgeon, who heads the semi-autonomous government in Edinburgh, wants to provide tax incentives to make it cheaper to extract oil and called on the U.K. to act. The SNP forecast an average price of $110 a barrel in its budget projections for an independent Scotland.
U.K. Prime Minister David Cameron said on a trip to Aberdeen in January that the government was in talks with companies on allowances to encourage investment.
Some jobs already have been lost. BP, ConocoPhillips and a venture between Talisman Energy Inc. and Sinopec Ltd. have announced hundreds of layoffs since last year. Companies are freezing wages and reducing pay rates for the thousands of North Sea employees who work on short-term contracts.
At the Crown & Anchor, project planner Gardner and fellow contractor Mark Saunders are on contracts that can be canceled with little notice. Gardner reckons he has a 75 percent chance of keeping his job this year while Saunders, 51, says he’s closer to 60 percent. Both have had their pay rates cut.
The two started commuting to Aberdeen every week from outside London in 2012. Six months ago, Gardner was making 78 pounds an hour, the equivalent of about 180,000 pounds a year. His pay is now down about 30 percent, he said, drawing a contrast with the days when he received two pay increases and enjoyed spreading his cash around Aberdeen’s restaurants, curry houses and pubs.
“It was a party town, a boom,” Gardner said, sipping a pint of Stella Artois. “I’d eat out three nights out of four. I was out in the pub most nights. But I don’t do that anymore.”
Back on Union Street, diamond-seller Ozdaslar, originally from the town of Marmaris on Turkey’s Mediterranean coast, is trying to remain optimistic.
“The oil price will go up,” he said. “It cannot stay like that. It must go up.”