Energy Insight: The economic contribution of the UK energy sector

This Energy insight  presents information on the economic importance of the UK energy sector considering the following factors: 

The data on the UK energy sector workforce varies from 178,000 directly employed in the energy sector[1]  (BEIS, 2017) through 538,000 employed in the broader mining, energy and water supply sector (ONS, 2017) to 730,000 employed directly and indirectly in the sector (Energy UK, 2017).

Taking into account the ONS data, the broad energy sector employs around 1.7% of the total UK workforce.

The oil and gas sector itself employed 330,000 in the oil and gas sub-sector (Oil & Gas UK, 2017)

The number of employees working directly in the low carbon and renewable energy economy in the UK, grew by 3.3% to 208,000 in 2016, from 201,500 in 2015. The energy efficient product group accounted for almost over two-thirds of this employment. 

UK nationals are after Americans, the second biggest nationality in the global renewable sector, accounting for 15% of the total global renewable workforce. 

The UK energy workforce is predominantly male. On average, only 12.8% of jobs in the UK energy sector are held by women. Additionally, the age profile is higher than the national average. 

According to the ONS figures for 2016, approximately 92% of people employed in UK energy and utilities are UK nationals. However, the sector is heavily reliant on foreign labour to fill a number of skilled engineering roles, as identified on the Home Office occupation shortage list. Approximately 40-50% of the occupations from the current occupation shortage list are related to the energy and utilities sector. 

Due to the recent financial downturn and post-2015 falling oil prices, more than 150,000 people were made redundant in the UK oil and gas sector. Global job reductions stand at more than 400,000 (PwC, Accenture). 

The energy sector, excluding renewables, provided 2.3% of GDP, i.e. nearly £45bn[2]  to the economy in 2016, decreasing from its peak of 10.4% of GDP in 1982 and of 4.5% of GDP on average between 1994 and 2009. 

Although the oil production increased in the past two years, a large fall in prices led to the contribution from the oil and gas sector falling below that of the electricity sector.

The UK low carbon and renewable energy economy grew by 5.0% to £42.6 billion in 2016, from £40.5 billion in 2015; it continued to account for around 1% of total UK non-financial turnover. The energy efficient product group accounted for almost half of total low carbon and renewable energy turnover (£20.7 billion). 

The energy sector is Britain’s largest industrial investor accounting for  34.3% of industrial investment in 2016 and 10.3% of total investment. Nevertheless, in 2016 investment in the energy industry fell 13%, or £18.6 billion, in comparison to the previous year, of which 34% was the fall in investment in oil  and gas extraction, 54% in electricity and 11% in gas.

According to Bloomberg New Energy Finance, the UK investment value in clean energy has peaked in 2015, reaching $25.9 billion. However, investment in green energy fell 56% in UK in 2017 – biggest fall of any country – after ‘stop-start’ support from government. 

New Investment in Clean Energy, United Kingdom 2004-2017, in $bn

According to calculations based on detailed government statistics, the total tax revenue from the UK offshore oil and gas sector added to £190bn since 1968 [3] . This number is not adjusted for inflation.

Tax revenue from the oil and gas production made an average annual contribution over the 10 years 2004/5 to 2013/14 of £7.4 billion, but declined rapidly in 2014/15 to £2.2 billion and almost zero in 2015/16.

Source: UK offshore oil and gas industry, Briefing Paper, House of Commons, March 2017

Nevertheless, according to Energy UK, the tax contribution from the broad energy sector, including nuclear and renewables, added to £5.9bn in 2015/16. 

In 2017, exports were expected to account for 43% (£11.8 billion) of the oil & gas supply chain turnover. 

Overall, the UK has been a net energy (oil, gas, coal, primary electricity) importer since 2004. Recently, the net import dependency has fallen from its 2013 peak.

Source: Digest of UK Energy Statistics (DUKES) 2017, BEIS

The UK had the eighth lowest level of import dependency in the EU, as all EU countries are now net importers of energy.

The energy industries are major contributors to the UK’s Balance of Payment through the exports of crude oil and oil products. Despite the decrease in export quantity, the total value of UK oil exports rose until 2013, mainly due to a decade-long surge (temporarily disrupted in 2008 and 2009) in oil prices, driven by the rise in global demand as well as due to instability of oil supply from the Middle East. 

However, the recent collapse of oil prices led to a fall in export value by 50% (£ 9.8bn) in 2016, compared to the peak year of £18.7bn in 2013. The top UK crude oil export destinations in 2016 were the Netherlands, Germany, China, South Korea, France and USA. 

Businesses active in the low carbon and renewable energy economy exported an estimated £3.7 billion in 2016 and imported an estimated £6.0 billion, compared with £4.3 billion in 2015.

 

The United Kingdom spent 1.37% of its GDP on subsidies for fossil fuels in 2015. This places the UK among the 6 bigger spenders (in dollar terms) on fossil fuel subsidies among the advanced countries, following the US, Japan, Korea, Germany and Canada. 

Source: IMF Survey: Counting the Cost of Energy Subsidies, July 2015

According to the Renewable Energy Foundation’s calculation based on Ofgem data, the total cost of subsidies to renewable electricity in the United Kingdom in 2002–2016 was £23.1bn. 

 

Source: Renewable Energy Foundation, The Total Cost of Subsidies to Renewable Electricity in the United Kingdom: 2002–2016, March 2017

1. The figure corresponds to the Standard Industrial Classification (SIC) codes defining the Energy Sector: Mining of coal and lignite (05), Extraction of crude petroleum and natural gas (06), Mining natural ores (07), Other mining and quarrying (08), Mining support activities (09), Electricity, gas, steam and air conditioning supply (35), Water collection treatment and supply (36), Sewerage (37), Waste collection, treatment and disposal (38), Remediation activities and other waste management services (39)

2. However, a calculation by Energy UK estimates the contribution of the UK energy industry to the economy at £83 billion (Written evidence from Energy UK to the House of Lords’ consultation ‘Brexit: energy security’, 2017).

3. According to a calculation by Oil & Gas UK, the oil and gas industry has paid over £330 billion in taxes to HM Treasury since the 1970s. The industry continues to pay around £2.5 billion per year in corporation tax and employment taxes right across the supply chain.