This article, written by Michael Gray, from the Business For Scotland website from 2014, is as relevant then, as it is now. Especially since it has come to light about Norway's trillion pound oil fund...
Amongst all the political spin and manoeuvring, sometimes ordinary business people struggle to establish the facts about an independent Scotland. Business for Scotland want to get straight to the heart of the important questions concerning next year’s referendum.
Scotland’s North Sea oil and gas has been a hotly debated asset since its discovery in the 1970s. The Yes camp points out that years of massive surpluses in the Scottish budget coincided with deindustrialisation and low investment in Scotland’s economy just when we needed investment and jobs most. The No camp claims that the oil is always just about to run out.
However, just as oil and gas revenues are one part of the argument that Scotland would be a prosperous independent country, they are not the whole story. Even without oil and gas, Scotland’s robust economy’s performance would be no worse off than the UK per head of population, which is why the Scottish Government can claim with credibility that oil is a bonus not the basis of our economy. But what are the other facts and figures on the past present and future of oil and gas that people need to know?
Here are 10 facts and all their sources underlining the simple truth about North Sea oil, compiled from government sources, companies, academics and oil industry experts, which we hope you find interesting and enlightening.
Fact 1) There are at least 15-24 billion barrels of oil remaining.
According to the UK Oil & Gas 2013 Economic Report, there are substantial volumes of North Sea oil and gas remaining. (7.4 billion from existing projects and 4 billion in new fields)
Fact 2) The remaining reserves are worth over £1 trillion.
According to government valuations – based upon current and projected markets – this oil has a total wholesale value of at least £1.5 trillion. This is influenced by soaring global demand for energy. The UK government predicts a 28% rise in demand by 2035.
Fact 3) North Sea oil and gas will last for decades and decades into the second half of this century.
Despite the scare stories, there are decades worth of North Sea oil available for extraction. The UK government concedes that oil has a future “well beyond 2055” (section 5) in their recent report on the fields. This is a conservative estimation compared to that of Dr Richard Pike, a former oil industry consultant, who predicts a future 100 years of North Sea oil.
Fact 4) More than 90% of the tax revenue will belong to an independent Scotland
According to Dr Alex Kemp of the University of Aberdeen, over 90% of total tax revenue from oil and gas is generated in Scottish waters. This is ensured by the United Nations Convention on the Law of the Sea (UNCLOS). The ‘medium line’, used when oil was discovered in the 1960s and in 1999 when considering fish stocks, would also place the vast majority of reserves in Scottish waters so at least 90% of the oil being Scottish is an accepted fact and when official Government figures allot North Sea revenues to the Scottish accounts they do so on this basis.
Fact 5) Scotland can establish a successful oil investment fund.
The Fiscal Commission Working Group, including several acclaimed international economists and Nobel Prize winning Economists, has recommended that an independent Scotland establish an oil fund. This fund will ensure that the proceeds of oil and gas can be invested in long-term projects to improve Scotland’s economic position. As previously explained by Business for Scotland, this may be preferable to immediately using the revenue to pay down debt or increase spending, especially as Scotland is expected to return to surplus in the years immediately following independence. Norway – which now has a colossal £460 billion in its oil fund – is enjoying a 14% return on its investments. In contrast, debt only accrues at approximately 3% interest payment.
Fact 6) Westminster squandered the oil and gas revenues.
Repeated UK governments wasted the vast revenues from North Sea oil and gas. Both Labour and Conservative governments at Westminster failed to establish an oil fund. Former Chancellors Denis Healey and Alistair Darling both concede this was a grave mistake. Short-sightedness and poor fiscal planning meant that billions of pounds of bonus revenue subsidised the rest of the UK’s deficits in the early 1980s.
Fact 7) The price of oil is likely to increase.
Due to increased demand and a reduction in relative supply, the price of oil is likely to increase. The vast expansion in the global economy has seen the price of oil increase from around $10 per barrel in the 90’s to an average of $112 per barrel last year, volatility in a massively upwards direction is not really a problem. Ed Daniels, Chair of Shell UK, Tony Reynolds, Deputy CEO of Bridge Energy and industry body UK Oil and Gas all say this trend of investment and growth is likely to continue. In the medium to long term, therefore, tax revenues from North Sea oil and gas are likely to go up. The ‘volatility’ of the oil market is in fact less so than the financial services market, upon which a great deal of Westminster’s economic strategy is dependent.
Fact 8) Oil revenues present an environmental challenge but also an environmental opportunity.
Scotland is an energy rich nation. However, finite resources cannot be used without
considering Scotland’s responsibilities to the global environment. Oil and gas present a challenge in controlling carbon dioxide production. Yet the short-term revenues from this industry can provide a long-term solution to both the economics of energy production and environmental concerns. Revenues and industry infrastructure and skills can support Scottish renewable energy projects, either directly or through Scottish oil fund investment.
This can form part of a crucial transition in energy production and consumption in Scotland – away from fossil fuel extraction towards clean, green energy sources. This is recognised by the current Scottish Government who have set and are achieving tough renewable energy targets.
Fact 9) Oil is only one aspect of Scotland’s diverse energy market and economic strength.
Oil is important to Scotland. However, it sits within a great wealth of many natural resources available to Scotland. In terms of energy alone, Scotland is developing an international pedigree in tidal, wave and wind energy. Scotland’s economy is also based on a much wider range of sectors – including retail, construction, tourism, manufacturing, electronics, textiles, banking, asset management, higher education, the creative sector, fishing, whisky and the thriving food and drink sector. In terms of tax take, Scotland’s returns from oil revenue are a far lower percentage than the receipts in Norway. Scotland’s economy is not dependent on oil revenues – they are a wealthy addition to Scotland’s overall prosperity.
Fact 10) Norway’s oil revenues might never run out.
Norway invested their oil revenues in a sovereign wealth fund. This began in 1990. It is now worth £460 billion. Managed by a state board, the wealth is invested in pensions, bonds and shares across the world. As a result of using oil revenues wisely, the people of Norway have an economy with strong, lasting foundations. Public services and tax levels in Norway have the added security of a stable fiscal balance. Quality of life and standards of living in Norway are the best in the world. This provides a stark contrast for the people of Scotland. It’s clear that Scotland’s natural resources are best managed by a government which is fully accountable to the people of Scotland. That is what can be ensured through a ‘Yes’ vote for independence.
As Larry Elliot the Guardian’s economics editor (a publication that is no friend to the Yes Campaign) wrote: “An entire era [of North Sea oil] can be summed up in three words: "discovered, extracted, squandered”.