Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, March 3, 1994 TAG: 9403030031
SECTION: BUSINESS PAGE: C-10 EDITION: METRO
SOURCE: Associated Press
DATELINE: ABERDEEN, SCOTLAND LENGTH: Medium
Taxi driver Mike Smith remembers the early 1980s, when offshore oil workers would step off the helicopter and think nothing of paying several hundred dollars for a ride home to England.
"Now, two pounds [$3] and they want a receipt," Smith said.
Such cost-consciousness might seem out of place at a time when North Sea oil production has been rising fast enough to startle OPEC, but not everyone in Scotland's oil capital is rolling in cash.
Instead, many are wondering whether a quarter-century of prosperity from North Sea petroleum is turning the corner toward a period of sustained decline. Despite record production levels, thousands of jobs are being lost and many workers are drawing smaller paychecks.
The lesson of the North Sea is that a lot of oil is not necessarily a good thing - at least not if it's being pumped quickly into a glutted market. The region is experiencing an oil bonanza if you count only the barrels, but troubles are apparent if you add up a few other things.
Still, officials in Scotland's Grampian region insist they aren't bracing for a repeat of the mid-1980s crash, when oil prices plummeted by 50 percent due to a glutted world market.
"It's not like '86 - there's no tumbleweeds blowing down the street," said Alan Campbell, principal economic research officer for the Grampian Regional Council.
For now, the combination of high production and low prices is a concern - from the executive suites of major oil companies to the palaces of petroleum; rich Arab states to the pubs of Aberdeen, where workers wonder whose jobs will be the next to go.
Oil is Scotland's biggest industry, but after peaking in 1991 with 54,000 workers, as many as 1,000 jobs are expected to vanish each year for the near term, with the total slipping to 43,000 by 2006, Campbell says.
Fewer workers are needed now that exploration is tapering off, production platforms are becoming more efficient, and companies are scrambling to cut costs to keep North Sea operations viable as lower-cost producers, like Vietnam and Kazakhstan, enter the market.
The dramatic rise in offshore oil production in Britain, Norway, Denmark and the Netherlands - up nearly 1 million barrels a day, to 5.1 million, over the past year - means that if the North Sea were an OPEC member, it would rank second behind Saudi Arabia.
This has not been lost on OPEC's oil ministers, who complained to Britain and Norway about overproduction as prices were plunging to a five-year low this winter. But OPEC got no satisfaction and the oil kept flowing.
In Aberdeen, some people worry that the oil cartel might be content to see prices drop even further to squeeze out a few rivals.
It costs the Organization of Petroleum Exporting Countries roughly $2.50 to pump a 42-gallon barrel of oil; in the North Sea, companies pay an average of $4.50, although some fields are more expensive, according to Leo Drollas, chief economist for the London-based Center for Global Energy Studies.
Premium-grade North Sea crude has been fetching less than $14 a barrel recently. Below $10, analysts say, companies would start shutting their least-efficient wells.
"The oil business has made a lot of people greedier than they had been before, because they're trying to live beyond their means," said Val Morrison, 43, who manages a downtown bar that's often full of oilmen.
"Aberdeen was a fishing town. When oil came, it just spoiled people. They're going to buy houses they don't need. They bought cars when before they used the bus. People put the prices up, but not everybody's in on it."
by CNB