Aberdeen feels the pinch from oil slide

Aberdeen: In this city built out of granite on Scotland’s North Sea coast, a diamond merchant checks the price of oil every day. Until recently, the dealer, Oscar Ozdaslar, had been accustomed to North Sea oil workers stopping in to buy £3,500 (Dh19,600) diamond rings and earrings in his store on Union Street.

“This Christmas was very quiet compared to the Christmas before,” said Ozdaslar. “The oil guys didn’t come in.”

Just six months ago, Aberdeen was the economic linchpin of Scotland’s campaign to split from Britain as oil traded above $100 a barrel. In the wake of the independence referendum’s failure, it serves as a microcosm of how crude’s slump to nearer $50 is hurting cities from Calgary to Kuala Lumpur.

“Aberdeen has been the focus of a classic oil boom,” said Gordon Hughes, a professor of economics in the University of Edinburgh. “There’s no doubt that the city will go through a bad period now that it’s over.”

What’s more, the North Sea basin is among the most expensive in the world from which to extract oil. About 20 per cent of British production is “uneconomic” at $50 a barrel, trade group Oil & Gas UK says.

BP CEO Bob Dudley has said it feels like the 1980s when he was living in Aberdeen working as an artificial lift engineer for Amoco before it merged with BP. Prices fell about 70 per cent in a few months after Saudi Arabia increased production and didn’t recover until 1990. Regions worldwide that depend on the industry are having an “enormous shock,” he said in an interview with Bloomberg Television.

At Cafe Boheme, a French restaurant across the street from Ozdaslar’s jewellery store, customers including Royal Dutch Shell cancelled about 30 Christmas bookings in December, said Dominique Mancellon, who owns and runs the eatery. Staff from companies including Shell, Statoil and Petrofac make up about half of his customers. Sales will fall about 10 per cent for the 12 months through July after increasing every year in the past decade, he said.

“If the price of oil stays down, we’ll have to be very careful about how we run our business,” said Mancellon. The fillet steak, which costs 28.50 pounds and was a regular order for oil workers, has declined in popularity, Mancellon said. A white wine from Chateau Mont-Redon from his native Provence region going for more than 70 pounds a bottle was also popular before the oil rout. Sales are now down about 60 per cent as diners choose the house wine instead.

The prospect of a slump has darkened the mood in a town where most of the buildings already are a dull grey and the sun sets by 4pm in January.

Petrodollars have sloshed around the Aberdonian economy since companies started pumping oil from the North Sea in the 1970s, transforming it into one of the wealthiest towns in Britain. The industry supports about 133,000 jobs in the northeast of Scotland, or about half of all those employed in the region, according to the local chamber of commerce.

Before the oil price accelerated its decline, the city’s fortunes were central to the debate about Scotland’s future in an independence referendum on September 18. Voters decided by 55 per cent to 45 per cent to remain in Britain.

Since then, talk has shifted away from the Scottish nationalists’ claim that the city would help underpin Scotland’s economy and onto what can be done to protect jobs. At least 11,000 North Sea jobs are at risk, according to the Aberdeen & Grampian Chamber of Commerce.

Scottish National Party leader Nicola Sturgeon, who heads the semi-autonomous government in Edinburgh, wants to provide tax incentives to make it cheaper to extract oil and called on the UK to act. The SNP forecast an average price of $110 a barrel in its budget projections for an independent Scotland.

British Prime Minister David Cameron said on a trip to Aberdeen in January that the government was in talks with companies on allowances to encourage investment.

Some jobs already have been lost. BP, ConocoPhillips and a venture between Talisman Energy and Sinopec have announced hundreds of layoffs since last year. Companies are freezing wages and reducing pay rates for the thousands of North Sea employees who work on short-term contracts.

Project planner Jules Gardner and fellow contractor Mark Saunders are on contracts that can be cancelled with little notice. Gardner reckons he has a 75 per cent chance of keeping his job this year while Saunders, says he’s closer to 60 per cent. Both have had their pay rates cut.

The two started commuting to Aberdeen every week from outside London in 2012. Six months ago, Gardner was making 78 pounds an hour, the equivalent of about 180,000 pounds a year. His pay is now down about 30 per cent, he said, drawing a contrast with the days when he received two pay increases and enjoyed spreading his cash around Aberdeen’s restaurants, curry houses and pubs.

“It was a party town, a boom,” Gardner said. “I’d eat out three nights out of four. But I don’t do that anymore.”

Back on Union Street, diamond-seller Ozdaslar, originally from the town of Marmaris on Turkey’s Mediterranean coast, is trying to remain optimistic. “The oil price will go up,” he said. “It cannot stay like that. It must go up.”