Oil and Gas Consultation Meeting
04/11/2014
10.30am – 1pm
ST ANDREW’S HOUSE EDINBURGH
MINUTES OF MEETING
Present:
Mairi Spowage
John Dowens
Iain Pearce
Stevan Croasdale
Anna Murray
Colin Macbean
Alan Ferrier
Katie Allison
Graeme Roy
Andy Hogg
Hervey Gibson
Karen Turner
Kim Swales
Joelle Russell
Alan Henderson
Erkall Ersoy
Mike Tholen
OCEA
(Chair)
OCEA
OCEA
OCEA
OCEA
OCEA
OCEA
OCEA
OCEA
OCEA
Cogent SI
CERES, Heriot Watt University
Fraser of Allander, University of Strathclyde
Scottish Enterprise
Scottish Enterprise
Heriot Watt Petroleum Research Instit.
Oil and Gas UK
Mairi Spowage (MS) opened the meeting and led introductions round the table. MS identified
those who had expressed an interest but were unable to come (Alex Kemp; Mike Earp,
DECC; ONS Regional Accounts team; Mhairi Begg).
MS noted that the ONS Regional Accounts team are interested in the oil and gas statistics to
estimate the offshore/onshore split of extractive industries for Extra Regio GVA.
MS also noted that Mike Earp from DECC had raised the “Extractive Industries
Transparency Initiative” (EITI) as AOB. Mike Tholen (MT) provided information to the
group about EITI.
Oil and Gas Model presentation - John Dowens
John Dowens (JD) gave brief overview of Scottish National Accounts Programme (SNAP)
and background to the Oil and Gas model. JD presented an overview of the sources, methods
and output statistics of the model, including the input data used to resolve geographic
breakdowns for quarterly statistics and annual benchmark data to which outputs are
constrained.
JD highlighted work which could be done to improve the model, including the potential
introduction of price signals to better guide quarterly paths within annual constraints.
JD briefly introduced a range of possible additional outputs which could be developed from
the model depending on quality assurance and user demand. These include longer (historic)
time series results, smaller geographic breakdowns (E.g. northern N Sea, West of Britain,
etc.), and a wider range of units (boe, tonnes, etc.). Extending the model to produce estimates
of tax revenues is another possibility, subject to extensive quality assurance of source data.
JD and Iain Pearce (IP) also summarised the publication of quarterly estimates of trade flows
of hydrocarbons and estimates of Scottish trade including a geographical share of extra regio
activity (similar to alternative GDP figures already published). These statistics are consistent
with an input-output framework, which links in to the development of a satellite account(s),
covered in the next item on the agenda.
Discussion:
Karen Turner (KT) enquired about whether the production of offshore statistics would
fundamentally alter the more established economic statistics produced for Scotland. JD
clarified that core economic statistics for Scotland (I-O, QNAS, GDP) continue to relate to
the ‘onshore’ economy (contiguous with NUTS1 geographies where region UKM is
Scotland) and that production of ‘offshore’ statistics (relating to a portion of UK Extra-Regio
geography) or illustrative ‘onshore+offshore’ statistics are produced additionally to meet user
demand and will always be clearly labelled. JD emphasised that users should be clear what
they mean by Scotland, in regards of ‘onshore’ or ‘onshore+offshore’ activity, as
recommended by UKSA Monitoring Review. Graeme Roy (GR) discussed the importance of
offshore activities to the wider Scottish economy.
KT asked if there would be consistency with the Regional Accounts from ONS. JD noted that
Scottish offshore GDP estimates are constrained to ONS figures for extra regio NUTS1, and
that further developments would aim to follow this basis. Stevan Croasdale (SC) noted that as
more detail on transactions and flows, such as trade, are added to the model, it becomes
increasingly difficult to maintain a balanced set of estimates which are fully constrained to
ONS.
Mike Tholen (MT) provided feedback on various aspects of the model and statistics. He
advised caution on attempting to produce higher frequency estimates of revenues, costs, etc.
(e.g. monthly) as the available data and industry accounts are not resolved at that level, and
that any reporting of items such as capital expenditure at less than annual level is likely to be
unreliable. MT also advised caution is required for selecting co-varying parameters: e.g.
operating costs could be flatter than output due to maintenance, and capital expenditure is
unlikely to be directly linked to monthly or quarterly production rates, etc. MT agreed with
the suggestion that price signals – particularly for gas – could be built into the model more
directly to avoid the risk of year end/beginning discontinuities. MT suggested that existing
data sources available to the model for deriving geographical splits of tax revenues are
unlikely to be of adequate quality for the stated aims of the model.
MS said that it was useful to be aware of these issues and also highlighted that it was
important to understand how HMRC has estimated liabilities and the Scottish share of tax in
its recent releases.
MT said that with regards to a satellite account model, there would be difficulties defining the
edges of what is Scotland. E.g. There may be a field on the median line border, with a
pipeline that runs through Scottish waters and a terminal in England. It would be difficult to
tease out the boundary definitions.
GR welcomed MT’s comments on monthly estimates and the difficulties of properly
reflecting monthly/quarterly capital expenditure.
MT raised the issue of exploration and other mobile support service activities, much of which
are treated as being based at onshore locations – where are these activities counted
geographically? JD noted that mining support industries are all counted onshore in
national/regional accounts, and that, e.g. a company based in Scotland exploring the southern
North Sea would be exporting services to RUK offshore. At present the oil and gas statistics
relate to extraction only, but support services would likely be included in satellite accounts.
MT raised a point on future projections and noted that all projections should be treated with
caution. MT noted that DECC receive data from Oil and Gas UK and that it may be possible
for data to be made available to the Scottish Government as well.
Hervey Gibson (HG) noted the importance of accounting for the value that offshore statistics
add to Scottish onshore statistics due to downstream activities such as oil refining and
petrochemicals, as well as upstream services. HG noted that the upstream and downstream
industrial linkages indicated that any satellite account(s) would ideally cover all UK offshore
activities, and not just the Scottish portion of activities.
Kim Swales (KS) noted the importance of employment in the offshore industries, and that the
oil and gas model statistics produced to date do not include labour market. JD explained that
the model had so far been developed from a national accounts (production and profits)
perspective rather than labour market. JD noted that labour market statistics tended to relate
to households rather than industries, and therefore that offshore workers are counted in
onshore statistics across the UK and not straightforward to allocate offshore at this time.
Understanding the Total Value Added of the Industry – Mairi Spowage
MS presented on the possibilities of a future Satellite Account of the North Sea. She
highlighted that, at present, offshore activity is only included in estimates of total GDP in the
Scottish Quarterly National Accounts, with no detailed components below this. The future
development of the statistics available depends on what people are interested in. Are users
interested in the interaction between extra regio (including overseas public administration)
and onshore or mainly the UKCS and onshore? A two region model was identified as a
potential first step, with the possibility of breaking this down further into regions of the North
Sea. She showed a simple example of a mock-up supply table for Extra Regio, highlighting
the possibility of breaking down Industry 6 (extraction) by Oil/Gas/NGLs in each region of
the North Sea using the oil and gas model statistics.
A mocked up Input-Output Use table was also shown, demonstrating for each region and
industry the products being used as intermediate consumption in the production process.
Mairi finished the presentation by reflecting on supply chain effects on the continental shelf
as a whole and the possible applications of a satellite account. The impact and uses of
producing a Supply & Use satellite account was discussedThe next steps are to look at
International Practice (e.g. Norway?) and possible data sources.
Discussion:
KT asked whether the satellite account would be geographical (e.g. offshore) or industrial
(e.g. extraction and upstream/downstream industries) in nature. The group identified some
desire for both.
MT noted that properly defining supply chain effects can be difficult, and referenced work
done in the past to map the supply chain, but where processes were missed when they
occurred outside Scotland. MT also noted that investment, production and tax revenues
operate in a cyclical (and often countercyclical) way, meaning that models based on several
years past may not accurately model current industry linkages.
KS noted the value of starting with a full UKCS model and suggested that how to do so
would depend on whether you are coming from a modelling or an accounting perspective. He
suggested that it may be relatively straightforward to add a separate North Sea Industry in the
IO tables, which would effectively be just like adding another region to the table, as offshore
activity is contained in a small number of industries.
IP discussed the difficulties in measuring broader offshore services. For instance, rather than
Mining Support Services (SIC Div 09), many companies which supply services offshore are
classified as Engineering and Technical Testing Services (SIC div 71).
HG highlighted that investment in the North Sea may not be easily identifiable in the body of
the supply and use tables. KS agreed that investment activities may need separate
consideration from production.
HG noted that hydrocarbon extraction is not a classic Input-Output industry, i.e. it is not
demand responsive, not linear scaling, and cannot be shocked. This should be considered
when analysing I-O estimates.
GR agreed with the group that modelling total UKCS activity is a sensible first step,
separately from onshore activity. There are issues that need to be thought about – how do you
trace Research and Development in the North Sea? Treatment of services such as
exploration? MT noted that there would be value in modelling the wider industry (not just
extraction) for analysing its participation in international activities and not just the UKCS.
Oil and Gas Energy Balance Presentation – Alan Ferrier and Katie Allison
Alan (AF) and Katie (KA) presented their provisional Sankey diagram of energy flows in
Scotland. AF noted that it was important to align their work with the work of the national
accounts. The diagram shows how energy is transformed and used and energy losses. The
presentation set out the sources of the diagram (DECC sub national table, SNAP Oil and Gas
flows, HMRC regional trade statistics and the Coal Authority). The Scottish version is a
simpler version of the UK’s due in part to a lack of sub national data. There is little data on
energy flowing between Scotland and the RUK. The aim is to publish a simple diagram and
improve this over time. The figure will be refined and published in the ‘Energy Compenium
in January’
Discussion:
The group was generally positive and welcomed the development of the energy balance
model.
IP noted that the model lacks information for electricity flows to the transport industry and
said that data may be available from rail companies as to their electricity use.
MT suggested that the diagram as an annual overview could mask the underlying flows of
imports/exports of energy from RUK. For example, Scotland generates wind power but at
certain times of the year, there is an import of hydrocarbons to balance the grid. The net
figures mask the underlying issues in the country’s energy use and the high interdependence
between Scotland and RUK.
Close of Meeting – Mairi Spowage
MS summed up the issues covered and closed the meeting. There were no formal action
points from the meeting, but OCEA analysts would reflect on the issues raised and consult
further with users on the development of satellite accounts and the ongoing production of
quarterly oil and gas statistics.