The Benefits of cheap diesel

Posted on November 25th 2015

by Greg Riddle

I filled up my car recently and got a pleasant surprise; a full tank cost less than £50. Checking the price on the pump, diesel was 105.9p per litre. I remember clearly filling up my car eight years ago in Milngavie on the way home from work and being outraged by the same price. Funny how we’ve been conditioned into thinking that over a quid for a litre of fuel is good value, but that’s another story.

Over in Aberdeen businesses are bemoaning the low oil price. The SNP’s favourite oil expert has just published a report, painting a stark picture of the future of the North Sea, warning that it would not generate substantial tax revenues for the “foreseeable future”. Since the start of 2014, Oil and Gas UK, the trade body, estimate that the number of jobs directly in or supported by the offshore oil sector has fallen by 65,000. In August, leading oil services business Wood Group cut more than 10% of its UK workforce. It seems like there are new headlines bringing more doom and gloom every week.

At Invergordon today there are at least seven rigs parked up, presumably undergoing some kind of maintenance. But if they’re in the Cromarty Firth, they’re not out drilling.

So what’s behind the low oil price?

Economists would tell you it’s all about supply and demand, citing the doubling of US domestic production since 2009 pushing out imports, weakening demand due to economic problems in China, and the Middle Eastern cartels refusing to cap production. They’re probably right.

The oil price drives the cost of fuel on forecourts, but also impacts on the cost of energy, and of manufacturing and transporting goods. Consumers in the UK are enjoying record low inflation when wages are just starting to rise again, which means more money in their pockets and no prospect of a significant rise in interest rates in the foreseeable future. The government aren’t so happy though, with less tax going to the coffers of the Treasury.

So in economic terms, whether a low oil price is a good or a bad thing depends on whether or not you, your business or your government are reliant on the black stuff for your income.

I carried out some research into skills shortages at the beginning of the year on behalf of a large construction industry organisation. I met and spoke to large and small businesses from Aberdeen to Fort William, the Western Isles to Shetland, Inverness to Wick and everywhere in between. Across the board they identified major skills shortages amongst professional staff such as Site Agents and Quantity Surveyors, but more acutely in skilled trades persons like bricklayers, joiners and plant operators. The shortages were most acute amongst trainees and workers at the middle of their career, rather than senior management or workers approaching retirement.

At present, the pipeline of construction and engineering work for businesses in the North of Scotland looks healthier than ever, business is booming in the sector, and the only barrier to progress appears to be a shortage of people to deliver the projects.

The most popular reason identified by employers for the skills shortages was competition for staff from the oil and gas sector, and that they couldn’t compete on salaries. We’ve all heard anecdotal evidence about the joiner who packed in his highly skilled job with a builder to go and work for a higher hourly rate sweeping the floor or on “fire-watch” at an oil and gas fabrication workshop. And when you’re working 8 until 6, far from home, knee deep in mud in December managing a large muck-shifting contract for a new road it must look pretty tempting to be sitting in a nice cosy office from 9 to 5 at an oil company HQ in Westhill with an extra £15k per year in your back pocket.

If the low oil price we’ve seen for the last 9 months continues, along with the associated job losses, mainstream construction and engineering companies have a fantastic opportunity, for the first time since the economic down-turn of 2007, to attract highly skilled workers displaced from the oil industry. We can’t compete on salaries, but we can offer rewarding work, progression, and secure, stable employment. But just attracting this talent is not enough. We need to ensure that we can retain it when the oil price rises again and the industry is booming.

When we talk about the oil industry there’s another question which crops about the environmental impact of their activities, but I prefer to think about sustainability. Sustainability is a bit of a buzzword that’s been hi-jacked by big business over the last decade, to promote their green credentials and corporate social responsibility. Sustainability for me is something different – and the Oxford dictionary defines it as “the ability of something to be maintained at a certain rate or level”. Is our reliance on oil sustainable? Of course not, irrespective of climate change targets or more efficient engines it’s either going to run out at some point or become so rare (and hence expensive) that we can’t afford to burn it.

Which brings me to my point. If we are to retain skills in industries like construction and engineering, we need to demonstrate that we offer long term career opportunities that oil and gas can’t match. There will always be a demand for engineering and construction skills; new homes, hospitals and schools, and infrastructure such as roads, railways, bridges and utilities. Engineering and construction is sustainable – whereas oil and gas has a limited lifespan, particularly in the North Sea. And that’s the message we, as an industry, need to sell. The tide is starting to turn, I know of at least 1 offshore worker who has in the last month taken a job in mainstream civil engineering, supervising a cable installation sub-contract package. In the meantime, I’m enjoying the cheap diesel.