The changing price of oil is never too far from the front pages, with the effect this has on domestic energy prices garnering most of the attention. Behind the headlines, however, Britain’s oil capital, Aberdeen is bearing the brunt of the fluctuating price of oil which has tumbled over the past three years.
In June 2014 Aberdeen had the honour of being able to boast more millionaires per head of population than any other place in the country, including London. It comes as no surprise that, for a city so economically dependent on the oil and gas industry, this moment coincided with the peak of the price of crude oil, which hit the lofty heights of $115 per barrel in mid-2014. This figure is far removed from today’s value which has fallen dramatically and is now hovering around the $55 mark. The downturn in price means there is now less incentive for exploration at the same levels of three years ago, and this has had devastating consequences for those who make their livelihood working on the rigs.
As a response to plummeting prices, oil producers have made significant cut backs in areas such as investment, jobs and wages. Thousands of workers have lost their jobs, while thousands more have seen their pay slashed and their employment terms and conditions adversely affected. Numbers suggest upwards of 65,000 UK jobs have been lost in the oil industry since the oil price slump set in and that figure is rising at an alarming rate as the crisis continues and the effects cut even deeper.
With the oil and gas industry so central to the city’s economy, the downturn has caused widespread knock-on effects. The boom years have ended and the quietening down of Aberdeen’s economy is deafening on the streets of the Granite City. With less disposable income going around, bars, restaurants, hotels and the property market have taken a severe hit. Fewer people coming into the city to work has meant hoteliers and taxi drivers have also reported a marked downturn in the demand for their services. While some businesses are managing to weather the storm, others have closed their doors for good.
On a personal level some people have seen their fortunes undergo a dramatic shift, with tales of some who would have previously been more at home dining in the well-heeled restaurants of the city, now joining the queue outside food banks. In fact the number of food parcels delivered in 2015 in Aberdeen and the surrounding area was double the amount provided in 2014.
Like the granite the city is constructed from, Aberdeen is made from strong stuff, and the signs are there that the city is resilient enough to weather the current storm. Aberdonian’s are optimistic about what the future holds and are hopeful the industry will experience a resurgence of activity. With gas and oil still available, exploration is continuing, even if this is on a less lucrative and therefore smaller, and less relentless scale than before. While the city may currently be down, it is almost certainly not out.
Written by Keith Tully; Partner at Real Business Rescue. Keith has 25 years’ experience advising company directors and stakeholders on matters such as corporate insolvency, finance and restructuring.