When the Wells Dry UpA "Everyone else in Britain hangs on what the Bank of England does wi

When the Wells Dry Up

A "Everyone else in Britain hangs on what the Bank of England does with interest rates," says one proud Aberdonian. "Up here, we don' t care about that. We' re much more interested in what OPEC does to the oil price." An exaggeration maybe, but Aberdeen is the Houston of an offshore industry that has long made Britain a big oil and gas producer. The petropounds coursing through the "Granite City" on the north-east coast of Scotland have turned Aberdeen into one of the most prosperous cities in Britain. The typical worker makes ￡481 a week, compared with median earnings of ￡447 across Britain. The city' s unemployment rate is well under the national average. The oil industry employs 33,000 people directly in Aberdeen and is estimated to provide work for 400,000 in Britain.

B Aberdeen is booming now thanks to high oil prices, but the future looks less rosy. Offshore output peaked eight years ago, when Britain was the world' s sixth-biggest producer of oil and gas; by 2006 it had become the 12th-biggest. The International Energy Agency said on July 10th that the drop in production had been steeper than expected. "There'll be nothing here in 15 years' time," says one former offshore worker. "Oil' s been good to me, but I wouldn't want my son going into the business." The recent decision by Royal Dutch Shell to sell off several of its North Sea fields and to abandon the construction of a ￡25 million head-quarters in the city has added to local worries.

C Yet even though oil and gas output is declining, the local businesses that have sprung up to support it have bright prospects. The North Sea was one of the earliest offshore oil basins to be developed. Many of the technologies needed to produce oil from underwater wells—especially in the difficult, gale-prone waters off the British coast—were developed in Scotland. Around 90% of oil-industry workers are employed not by the big international companies such as BP or Total that operate the fields but by local businesses.

D For example, Wood Group is a big oil-services firm that specialises in, among other things, enhanced-recovery technology and offshore pipelines. Sub-Atlantic is a small outfit that makes remotely operated submarines. Altogether such businesses—covering everything from catering and construction to geology and engineering—have a turnover of around ￡11.7 billion a year. The hope is that they will be able to sell the expertise they have acquired in the North Sea to an industry searching for oil and seeking to maximise production in ever more testing submarine conditions around the world.

E One area of particular British expertise is in subsea technology, a catch-all term for things such as automated wellheads and long pipeline networks on the seabed. These allow oil companies to use cheap ships instead of expensive fixed platforms and enable them to operate several wells from one platform. many miles away. Remotely operated vehicles are used to install and maintain equipment where water is too deep for divers. In 2005 Britain' s subsea industry' s output was worth around ￡3.4 billion, half of which was exported, a 20% rise on the year before. There are big opportunities to keep growing fast. British firms account for half of global sales, and the industry is expanding rapidly. The world market for subsea services could be worth $40 billion by 2011, according to Scottish Enterprise, a development agency. David Pridden, the boss of Subsea UK, a trade agency, thinks exports from the British industry could reach $15 billion by 2020.

F Local businesses also have experience in squeezing more output out of existing fields, or cheaply developing smaller ones—something that should extend the life of Britain' s North Sea industry. As big finds become rarer, producers are focusing on how to extract oil from smaller reservoirs that can be geologically or technically tricky to operate. "As oth