Aberdeen is paying the price for oil's decline

Six years after the financial crisis, with the rest of Britain poised to boom, Aberdeen faces a downturn 

Aberdeen is like no other place in Scotland. The prosperity that the oil industry brings to the city is evident from the moment you step off the plane at the airport, where luxurious Mercedes AMG taxis with plush leather seats queue to ferry the lines of oil workers, engineers and executives who fly in and out on a daily basis to the hundreds of offices and rigs belonging to Royal Dutch Shell, BP, Petrofac and others.

Even the ATM machines in the arrivals hall are calibrated to automatically offer £200 as the minimum withdrawal, geared to serve the thousands of high-income professionals in the oil industry who pass through after weeks spent working offshore in one of the world’s most inhospitable environments. But these days people are nervous in the “Granite City”, a name it earned almost a century before oil was first discovered in the North Sea. Aberdeen’s original resources boom was in the quarrying and export of the tough slate-grey rock from which so many of the city’s grand old buildings are built.

Unlike the rest of the country, which suffered badly during the global financial crisis, Aberdeen was untouched by the recession because of the rapid rebound in oil prices to more than $100 per barrel.

When asked about the effects of the economic downturn, which erupted in 2008, people in the city will say “what financial crisis, it never happened up here?”

Aberdeen and its surrounding “shire”, with a gross value added (GVA) of £31,753 per person, is the most economically productive region in the whole of the UK, outside inner London. Over the past decade, GVA has increased by almost 59pc in the region, compared with a rate of 35pc on average for the rest of the UK, according to Aberdeen City Council

 

The irony is that six years after the collapse of the investment bank Lehman Brothers, Aberdeen is finally about to experience its own form of slump at a time when the rest of the UK economy is poised to boom, spurred on by the benefits of the falling price of a barrel of crude and cheaper energy costs.
From Aberdeen to Houston in Texas, Dubai and Perth, Western Australia, global oil and gas hubs are suffering a dose of economic reality after a 60pc slump in the price of oil since June and the fear that the cost of a barrel could remain at levels around $50 for years to come have prompted companies to cut back on investment.
Although building work on new office and residential developments is evident across the city, there are already signs that the impact of the job losses and investment cutback that have started to directly hit the oil industry, upon which the local economy depends, are being felt further afield.
A recent survey by accountancy firm Moore Stephens showed a 45pc jump in “risky mortgages” in the City – the highest level in Scotland. However, that hasn’t stopped some sellers rushing to capitalise on what could be the last days of the city’s property boom.
One Aberdeen mansion went on the market last month hoping to fetch £3.2m. If the property sells, it would beat the current record for a residential property in Aberdeen, which was achieved in December when a granite-built town house in the city’s exclusive Rubislaw Den neighbourhood was sold recently for just over £3m irrespective of concerns about the plummeting value of oil. Despite the high prices that continue to be asked for property, people in the city are growing nervous that tougher times could be just around the corner.
“There is certainly an air of doom and gloom around the place these days,” one oil field engineer working in Aberdeen told The Sunday Telegraph.
That sense of doom has increased since the big oil majors began to lay off hundreds of workers. BP cut just under 10pc of its 3,500-strong workforce in Aberdeen last month. It was followed by Sinopec-Talisman making similar lay-offs. Next week, Tullow Oil is expected to detail the scale of its cuts to headcount.