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View Full Version : Full Speed Ahead!—The Rush for Britain’s Oil



Michael Smart
11-12-2013, 06:05 PM
There will be argument for many years as to whether or not Britain should
have developed her North Sea resources as quickly as she did.



—— Guy Arnold, Britain’s Oil, p. 133.


In Britain, the onset of the 1973 Yom Kippur War in October and the latest oil price increase from $3.01 to $5.11 per barrel couldn’t have come at a worse time for Prime Minister Edward Heath. All year long the leader of the Conservative Party had been struggling with an economy reeling from the effects of runaway inflation and a growing balance‑of‑payments deficit. January had brought thousands of British civil servants, including clerks and secretaries from his Cabinet Office, into the streets in angry protest over his earlier decision to impose a 90‑day wage and price freeze. The work stoppages were the first ever mounted by civil servants, and the action disrupted the very fabric of ordinary British life: travel through airports, disbursement of government subsistence checks, tax collection, registration of births and deaths, even the reading room at the British Museum was closed to the public.1

A month later, gas‑industry workers, upset about the government’s cap on wage increases, disrupted deliveries. Schools, factories, and homes went without heat. Investors, demonstrating their lack of confidence in Heath’s anti-inflation policies, began taking their money out of the London Stock Exchange to the tune of $5 billion.2 Meanwhile, as wages remained frozen, food prices continued to soar because half Britain’s food supply came from abroad.3

Added to Heath’s economic woes was the country’s growing dependency on foreign oil. Britain was consuming about 98 million metric tons of oil products each year, 80 percent of which was supplied by the Middle East and Libya.a And now, after a 70 percent rise in the barrel price, reports were circulating that the oil import bill, currently at $2.5 billion, was likely to grow by another billion dollars annually.4 Anticipating a shortfall in gasoline supplies, Heath ordered the stockpiling of rationing coupons at post offices throughout the country.5

Arab oil ministers were obviously flexing their muscles, but the worst was yet to come. On October 17, the day after the price hike, OPEC began implementing a policy of monthly five percent cutbacks on the flow of oil to countries supporting Israel (primarily the US).6 The cuts would continue, it was declared, “until Israel evacuated the lands taken in 1967 and made restoration to the Palestinian refugees.”7 “Friendly countries” that adopted this view would continue to receive their normal supplies. When President Nixon asked Congress to authorize a $2.2 billion military aid package for Israel on the 19th, the Arab states promptly announced a full scale embargo.8

Although the Gulf states designated Britain as one of the “friendly countries” and gave “assurances” that it would continue to receive its normal supplies,9 those assurances were under threat if the oil companies managing the distribution of Persian Gulf exports decided to ignore the will of OPEC. The Arabs warned that the embargo was not to be violated or there would be repercussions, and no one doubted the seriousness of that threat. Both Mobil Oil and Exxon had lost their positions in Iraq just one day into the October War.10

Meanwhile, British coal miners were revving up for a fight with Prime Minister Heath over the size of their pay packets. Coal production was down and Heath feared that a full-blown strike in the midst of an oil shortage would be disastrous for the citizenry. Concerned that Britain might not get its normal shipments for the upcoming winter, he tried to strong‑arm the chairmen of British Petroleum and Royal Dutch Shell Group into keeping the oil flowing into the country, no matter what the threats, but both men refused to cooperate.11

On November 5, after deciding that their initial cutbacks were not severe enough, Arab oil ministers announced a further 25 percent reduction in oil shipments to Western Europe.12 Five days later, London predicted a shortfall of oil supplies by 15 to 25 percent for the upcoming winter. That revelation sent shock waves reverberating throughout the business community. To make matters worse, October’s trade deficit of $821 million was the worst in British history, nearly doubling the September figure.13

With an energy crisis at hand and militant mine workers reducing coal stocks in order to destabilize the government, Heath had to take drastic measures to restore public confidence in his leadership. On November 13, he put the country into a state of emergency with industry expected to reduce power and fuel consumption by 10 percent. As theater owners turned off neon display signs in London’s West End, the Bank of England cut the money supply, sending the minimum lending rate rocketing from 11.25 percent to a record 13 percent, which in turn provoked a $3.6 billion sell-off on the London Stock Exchange.14

A month later, with coal production down 40 percent, Heath extended the state of emergency and imposed new restrictions to cope with the energy crisis. Television broadcasting was banned after 10:30 p.m., phased blackouts were implemented, industry was put on a three-day-work week, and the public was asked to turn lights down and reduce heating to a single room.

In a televised address Heath tried to prepare the nation for hard times. “We shall have to postpone some of the hopes and aims we have set for ourselves for expansion and for our standard of living,” he said.15 All across the country, the winter of 1973-4 would soon be regarded as the worst ever since the end of the Second World War.16

A suffering British economy, however, was of no concern to the OPEC Arab oil ministers. Their goal was to force the Israelis to give back the lands captured during the 1967 Six‑Day War and make reparations to the Palestinian refugees. To illustrate the seriousness of their demands, they met in Tehran that December and sparked a global energy crisis by raising the barrel price once again, this time more than doubling it to $11.65, effective January 1, 1974.17

With OPEC now using oil as a political weapon, and the British economy continuing to slide into debt, there was a growing sense of urgency for government authorities to secure whatever indigenous sources of oil they had as rapidly as possible. In January 1974, this sense of urgency had become so acute, that Aberdeen editorials were offering advice to London in an effort to intensify the view that the country’s overall economic prospects were linked to North Sea oil. And it was “the new job of people in the North-east,” wrote British economist Roger Nicholson, “to convince the Government of this change.”

Nicholson suggested that companies supplying raw materials to the oil industry be given special exemptions from power restrictions, that the infrastructure necessary to accommodate the oil industry be fortified, and that planning procedures be “speeded up and strengthened...so that contractors can press on as quickly as possible with developments.”18

The quicker the oil came out of the ground, the sooner Britain could inoculate itself from the vagaries of Middle East oil sheiks and thereby ease its balance-of-payments problems. And “hopefully,” wrote The Scotsman, “...lack of money will not be permitted to stand in the way of exploiting this priceless natural energy resource.”

And what was the mood toward environmentalists? There would be some “heartaches,” The Scotsman declared, “where economic benefits far outweigh environmental losses.”19

Aberdeen’s sense of urgency had not been overlooked by London. Since 1972, government officials were well aware that massive quantities of high grade, low‑sulfur oil lay beneath the British sector of the North Sea: the huge deposits in the Brent and Forties Fields were evidence of this. And while Norway would adopt a slower strategy for development, combined with state participation in order to curb the wrenching impact of foreign influence upon its people, culture, and local economies,20 Britain would take the opposite view.

Even at the outset, authorities placed a high priority on speed which was made clear by the Minister of Power in 1965 when he addressed the House of Commons detailing the guiding factors by which production licenses were to be allocated to the oil companies:

In the government’s view, the over-riding objective is to secure the most thorough and rapid exploration and development of the oil and gas resources of the Continental Shelf in the national interest. I shall therefore consider all applications which can contribute to this end...21


Faced with this mandate, British industry suddenly found itself caught off guard and unable to cope with the daunting task of claiming its energy resources below a nasty sea. Due primarily to its “disappointing economic record” and “low level of investment in the manufacturing sector,”22 Britain neither possessed the technology nor the labor force skilled enough to fulfill the government’s objective at the desired pace. Just in terms of exploration alone, most of the equipment necessary to drill for oil was in the hands of the United States. Of the 29 rigs operating in the British sector of the North Sea in 1974, 79 percent were American owned or jointly owned by American/European ventures.23 Only one, the Sea Quest, belonged to the British.

In 1973, the Scottish Development Department projected that over the next decade 20 to 50 production platforms would be required to maintain a steady flow of oil to shore.24 The task of building and installing those platforms on the Continental Shelf would require large project management teams, an area which, again, US companies dominated because of their previous experience off the coast of California, and in the Gulf of Mexico.

Britain also found herself ill‑equipped in certain core industries such as the manufacture of large diameter pipe. For example, oil from the Forties Field would ultimately flow to shore through Japanese steel because there were no domestic mills capable of manufacturing pipe in the required thickness,25 or in diameters larger than 16 inches.26 Thus, the miles of 24‑ to 36‑inch pipe needed for Ekofisk, Piper, Ninian, and Frigg would come from abroad. Nor did the British have the barges to lay the pipe, so the Italians, Americans, and Dutch were typically hired to do the job.

But beyond the sheer logistics of building an offshore infrastructure, there were the enormous financial costs which the British banking system was unable to cope with. Initial estimates for exploration and development were in the neighborhood of £9.1 billion, not including operating costs.27 Very soon, this calculation would fall to cost overruns and delays due to weather conditions and inflation. British Petroleum, for example, would borrow £360 million in 1972 to begin the development of the Forties Field. But by 1976, that figure would balloon to £750 million.28 Brent would cost £2,900 million.29 These were staggering outlays that would have to be paid back with huge interest payments. And if the oil companies hoped to make a profit, and if North Sea oil was to provide a counterweight to OPEC as the government expected, then the nation’s oil resources would have to be brought to shore as quickly as possible and before any potential drop in market price.30

Keen on a policy of “rapid exploration and development,” British authorities couldn’t have found a more willing partner than the American toolpusher whose speedy traditions had been a way of life for decades. Driven by profit, there was no philosophy more appreciated within the oil industry than the kind of behavior which got the job done yesterday. By the time Richard Walker landed on board the Choctaw in the fall of 1973, the industry was so imbued by this single most important priority that it set the tempo on the work deck and would ultimately play a role in determining his fate.

While the Minister’s statement in 1965 was expressed on behalf of national interest, it also represented the cornerstone of official sanction allowing the oil companies to carry on with their normal and accepted practices. And so they did. Contracts were signed, construction orders placed, and fabrication begun on platforms even before the construction yards were finished.31 Oil companies pressed for the earliest possible deliveries of the production platforms. And despite the fact that reliable data on wind, waves, and currents to determine their effect upon such structures did not exist, design and construction went ahead anyway.32

Author Bella Bathurst writes that for centuries Britain needed the sea, “fed on it, took employment from it, and profited by it.”33 Now she was in a hurry to find her destiny as an oil producing nation. And if 1973 could be regarded as the calm before the storm, 1974 would be the year where the rush for oil unleashed construction projects on an unprecedented scale, the diving population would double,34 the government would create an entire Department to sponsor the oil industry, Prime Minister Heath would be forced from power, and classmates Tom Belcher, Burt Davis, and Craig Roberts would join Richard in Scotland.

Nineteen seventy-four would also produce the greatest number of diving fatalities in North Sea history.



a) 60% from the Middle East, 20% from Libya. Source: New York Times, October 18, 1973.

Endnotes:
1 New York Times, January 11, 1973.
2 New York Times, February, 23, 1973.
3 New York Times, January 19, 1973.
4 New York Times, November 14, 1973.
5 New York Times, October 18, 1973.
6 New York Times, October 18, 1973.
7 New York Times, October 22, 1973.
8 New York Times, October 21, 1973.
9 Daniel Yergin, The Prize, p. 623.
10 New York Times, October 8, 1973.
11 Daniel Yergin, The Prize, p. 623-624.
12 New York Times, December 14, 1973.
13 New York Times, December 14, 1973.
14 New York Times, November 14, 1973.
15 New York Times, November 14, 1973.
16 New York Times, December 11, 1973.
17 The Europa World Year Book, 1996, p. 215.
18 Press and Journal, January 22, 1974.
19 The Scotsman, January 17, 1974.
20 Adrian Hamilton, Oil: The Price of Power, p. 147-149.
21 Department of Trade and Industry, North Sea Oil and Gas: A Report to Parliament, January 25, 1973, p.14.
22 D. I. MacKay and G.A. Mackay, The Political Economy of the North Sea, p. 84.
23 D. I. MacKay and G.A. Mackay, The Political Economy of the North Sea, p. 80.
24 Scottish Development Department, North Sea Oil Discussion Paper, April 1973.
25 D. I. MacKay and G.A. Mackay, The Political Economy of the North Sea, p. 83.
26 Guy Arnold, Britain’s Oil, p. 38, 48.
27 D. I. MacKay and G.A. Mackay, The Political Economy of the North Sea, p. 74.
28 Charles Woolfson, John Foster, and Matthias Beck, Paying for the Piper, p. 30.
29 Guy Arnold, Britain’s Oil, p. 35.
30 Charles Woolfson, John Foster, and Matthias Beck, Paying for the Piper, p. 20.
31 Department of Energy, North Sea Costs Escalation Study, Energy Paper No. 7, page 55.
32 Department of Energy, North Sea Costs Escalation Study, Energy Paper No. 7, page 10.
33 Bella Bathurst, The Lighthouse Stevensons, p. 8.
34 Jackie Warner and Fred Park, Requiem for a Diver, p. 45.

Phil O
11-12-2013, 09:45 PM
Great article thanks.

I remember the three day week in the 70's and subsequent political agreements like the social contract for agreed pay rises. Oil prices peaked towards the end of the 70's early 80's before dropping to quite a low level. At the time I worked in the Merchant Navy with Texaco and fondly remember one trip from the gulf through to Europe where the ship was given orders to reduce speed to the minimum possible while maintaining the ability to steer safely. For a supertanker that turned out to be around 4 knots which is mind numbingly slow. We went that slow to enable the 250,000 tonnes of crude oil that we carried to be sold, which eventually it was and we were allowed to speed up to a massive 10 knots.

I feel a book coming on.

Michael Smart
11-12-2013, 11:21 PM
I feel a book coming on.

Phil,

Now that gave me a chuckle. I volunteer to be your guide.