THE oil and gas industry could be hit with a £200 million a year ‘Brexit bill’ if a trade deal with the European Union is not reached, experts have warned.

Researchers at Robert Gordon University in Aberdeen have examined the impact on the industry of the UK leaving the EU.

The concerns highlighted include the possibility of increased tariffs on exports of oil and gas services, adding significant costs to companies which operate globally.

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The issue of free movement in the labour market and how this will impact on the ability to recruit international workers with specialist skills and capabilities is also raised as a concern.

Professor Paul de Leeuw, director of the Oil and Gas Institute at Robert Gordon University, said some of the impacts of Brexit would be “relatively modest” as the industry was international and used to a rapidly changing environment.

But he added: “There are impacts particularly around exporting goods and services to the world.

“The North Sea, especially the Aberdeen and the Aberdeen area, is a great source of exports to the rest of the world, particularly in oil and gas services.

“That will be impacted because unless we have deals in place, we will be potentially exposed to additional tariffs.”

Leeuw said if World Trade Organisation rules were in place there was potential for additional tariffs of up to £200m a year on the industry – although he added this was “relatively modest” in proportion to the £14 billion of export potential.

But he said: “The other thing we see as being a challenge is this is a truly international and transnational industry – we do rely on the best capabilities, the best skills, whatever country they come from.

“The movement of key resources, whether it be operational resources, management resources or specific technical skills, are going to be critical for the success of the industry.”

The warning comes as Scotland’s oil industry received a major boost last week with the announcement of what has been described as the largest undeveloped discovery on the UK continental shelf (UKCS), which is principally the North Sea.

Hurricane Energy announced one billion barrels of recoverable oil could be in the oil field west of Shetland.

Here we look at what this discovery means and whether the oil industry has turned a corner after years of struggle:

NEW DISCOVERY

The discovery by Hurricane in the Greater Lancaster area site, around 60 miles west of Shetland comes after more than a decade of exploration in the area. The company announced it had found oil in two wells about 19 miles apart, which it said proved the presence of a giant field. It hopes to begin production in 2019.

However it is not the only significant discovery the firm has made in the area – another field called Whirlwind is estimated to hold around 205 million barrels of oil, worth around £2bn at today's price of $50 a barrel.

Leeuw described it as welcome news, but said it was early days in terms of how much oil could be potentially be extracted and whether it could bring a jobs boost to the oil industry.

He said: “This is exploration – they have found the field, but that doesn’t indicate yet how well the field will produce and how it will develop.

“This is a particular type of reservoir: it is like really hard, really brittle rock and all the oil sits in little cracks.

“The main thing which needs to be done is to test the reservoir and see how well it flows. That is what the company is going to do next and plans to get some early production.

“It is a very welcome development in the North Sea, but the main thing is how well it will flow – that needs to be tested in the years to come.

“I am cautiously excited.”

Alistair Cooper, chair of the development committee at Shetland Council, said it seemed to be a significant find.

But he too said it was too early to assess exactly what benefits it may bring to the islands and any developments would have to also take environmental considerations into account.

He added: “There is a lot more interest west of Shetland and a quite a number of new operators who are going to go west of Shetland. It is good news.”

THE FUTURE

The UK oil industry has been rocked by a global drop in oil prices in recent years. Between 2011 and mid-2014 a barrel of oil fetched as much as $120, but that dropped to as low as $30 a barrel in February 2016.

Around 100,000 jobs were lost in the industry between 2013 and 2016.

However there are signs the sector may have turned a corner. The latest outlook report from industry association Oil & Gas UK, notes that the price is forecast to be around $50-60 a barrel in 2017, up 26 per cent on the previous year. Around 360 million barrels were discovered in 2016, more than in any other year since 2008.

Professor Alex Kemp, director of the Aberdeen Centre for Research in Energy Economics and Finance at Aberdeen University, also pointed to the recent awarding of licences for exploration and production in new and under-explored areas of the North Sea as providing encouraging signs.

He said the fact large companies such as Shell, Esso, BP and Statoil had taken the licences pointed to hopes there was the potential for major finds.

“Shell and Esso are not going to go looking for five or ten million barrel fields, that is too small to make an impact on their profit,” he said. “They will be looking for bigger ones.”

Kemp recently produced a report which forecast 11bn barrels of oil can be extracted from the UK continental shelf between now and 2050, based on models which predict prices will stay “lower for longer”.

But he told the Sunday Herald further research, which is yet to be published, showed this could significantly increase if higher oil prices fuelled a drive towards more production.

“We are finding that makes a big difference and instead of 11billion barrels of oil equivalent by 2050, we are thinking you could get another five billion or so," he said.

“That needs the oil price to come up a fair bit to around $70 or $80 [a barrel].”

In the 1970s, Department of Energy economists forecast total reserves of between 8.5 and 14bn barrels on the UK continental shelf.

To date, around 43bn barrels of oil and gas have been recovered. Oil and Gas UK has forecast there are up to 20bn barrels more to be extracted.

OIL REVENUES

The North Sea energy sector and its benefits to the economy have come under much scrutiny and debate since the independence referendum in 2014.

The latest forecast, published in March, predicted the UK Treasury will receive £4.6bn from oil and gas revenue between 2017-18 and 2021-22, a drop on the £7.3bn predicted last November.

Longer term figures illustrate how difficult it is to look into the future. Statistics from the Office of Budget Responsibility, produced in 2015, estimated revenues between 2020-21 and 2040-41 could be as low as minus £5bn, if oil prices remain low and there is little production. However it also forecast this figure could be £33bn, if there are high prices and production. The central projection figure – considered the most likely estimate – is £2.1bn.

Oil and Gas UK recently said confidence in the sector is slowly returning, but urged the Treasury to extend tax breaks known as investment allowances to support activity in the North Sea.

However Gordon MacIntyre-Kemp, founder and director of pro-independence group Business for Scotland, argued that "decades of economic mismanagement” have resulted in oil revenues in the UK dropping far more than any other oil producing nation, over and above the impact of lower oil prices.

He said oil companies were being given massive tax breaks while still paying billions in dividends to shareholders.

“We also note that this is part of a national trend on UK taxation that large corporates are being allowed to find ways of paying less tax and that is a major contributor to austerity,” he said.

“We need to review taxation as a whole and if there is a case for lowering the direct taxation of a big corporate then it must be linked to benefits to the economy and wider society.”

Environmental campaigners have also warned opening up new areas for oil and gas exploration is “not something we should be breaking out the champagne about”.

Lang Banks, director of WWF Scotland, said: “We're seeing clean onshore wind and solar companies getting the rug pulled out from under them while the polluting oil and gas industry receive even bigger tax breaks to help them drill every last drop from under the North Sea."