©Laggan-Tormore

The Laggan-Tormore project, west of the Shetlands, could help revive the UK’s hydrocarbons sector

For the storm-hit oil and gas sector, the UK’s northern archipelago of Shetland looks like a sunlit haven between the turbulent waters of the North Sea and the Atlantic.

On Monday, oil company Total will formally inaugurate a gas processing plant on Shetland that will process the output of its new £3.5bn Laggan Tormore field, west of the islands.

The presence of Amber Rudd, UK energy secretary, will be a demonstration of how important ministers feel Laggan Tormore could be in reviving the British oil and gas sector.

Peak capacity from the field is estimated at 90,000 barrels of oil equivalent a day — 5 per cent of UK total offshore production — and Total says it expects to invest another £1bn in other fields made accessible by the Laggan Tormore infrastructure.

Yet behind the good cheer, Shetlanders say their islands are far from immune to the oil price collapse. “We thought we were at the beginning of another oil boom — there was a colossal amount of work over the past few years,” said Drew Ratter, a local councillor and former chairman of the Shetland Charitable Trust, the islands’ oil fund.

But Mr Ratter said the sector “went up like a rocket and down like a stick”, with low oil prices meaning field developers were regretting their investment.

“The North Sea was not a cheap place to produce oil from and the Atlantic is significantly worse,” he said. “They are now completing projects [in the Shetland area] that in some cases they wish they’d never started.”

BP is this month stationing a huge new floating production vessel in waters west of Shetland to extend the life of fields there for decades. But it has already put on hold its plans for a £500m gas plant in Shetland. 

The oil slump is affecting traffic at the port in Lerwick, the Shetland capital. “A couple of years out we could see exploration was drying up,” said Sandra Laurenson, chief executive of the Lerwick Port Authority. “With the oil price collapsing there is unlikely to be any significant spend . . . in new field development.”

For Shetland, an archipelago halfway to Norway with just 23,000 people, the oil era is credited with attracting needed immigrants, transforming island infrastructure and making full employment the norm. A past levy on oil landings negotiated by astute Shetlanders paid for generous leisure and welfare facilities as well as the £200m charitable trust.

But Mr Ratter said the level of provision may not be sustainable. The council has been cutting spending along with other local authorities across Scotland whose budgets are under pressure. This could be worsened by falls in income from its own oil-related rents and harbour fees.

There are also concerns that the benefits of energy development are not reaching the Shetlanders as much as they used to.

Locals say it has become increasingly hard to get jobs with BP, which runs the huge Sullom Voe oil terminal among low green hills on the Shetland mainland.

BP appears to be “treating Shetland like an offshore installation”, complains Gary Robinson, council political leader, with all workers required to stay in company accommodation.

Total says more of the 80 permanent jobs at its gas plant are filled by locals, “the better for both the island and for Total”. Mr Robinson says islanders will be watching closely — “the jury is out on that one”.

Despite the concerns, Shetland is suffering much less than Scotland’s oil capital of Aberdeen, where thousands of jobs have been shed.

Cruise ships are coming in large numbers. Island fisheries and aquaculture are “doing well”, says Douglas Irvine, council economic development manager. Sea produce is worth about £350m a year to Shetland, far more than the £60m contributed by energy before the opening of Total’s gas plant.

The council is keen to foster growth in tourism and renewable energy, though tapping the windswept archipelago’s most obvious resource would require an expensive connector to the Scottish mainland.

Mr Robinson says oil and gas will be important to Shetland for decades to come but the downturn has been instructive. “It does emphasise the need for diversification,” he says.