Oil and Gas

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FOR THE UNION FOR INDEPENDENCE
Rights to ownership

Sir Paul Collier, Professor of Economics and Public Policy at the Blavatnik School of Government, and Director for the Centre for the Study of African Economies at The University of Oxford warns against the SNP’s geographical approach to ownership.[1] Scotland’s claim to ownership of North Sea oil and gas is considered an unethical back-track of the UK Continental Shelf Act, passed in 1964. He suggests that were an independent Scotland allowed ownership of these resources, it could set a dangerous example for other resource-rich countries, resulting in inequality and conflict.[2]

Fiscal and regulatory climate

Prime Minister David Cameron has claimed that the larger UK government and economy is necessary to secure the future of the oil and gas industry, and protect against unpredictable yearly fluctuations in oil and gas prices.[3]
The UK government plans to introduce new measures to maximise the country’s remaining offshore resources, as well as implement a more collaborative relationship between the energy industry and the government. This could bring an estimated £200bn to the UK economy.[4] The Government warns that fragmentation of the existing fiscal arrangements would cause inefficiency in the oil and gas industry.[5]

Current Revenue

North Sea receipts dropped by £4.5 billion in 2012/13 to £5.6 billion[6].

Short-term revenue predictions

Longer term outlook

The Office for Budget Responsibility (OBR) has made considerably lower predictions than the Scottish Government on yearly oil and gas revenues.[7]

Oil Fund

The UK Government states that plans to create a Norwegian-style oil fund would not be possible for an independent Scotland, since oil and gas proceeds are already used elsewhere in its public services. The creation of such a fund would result in increases in taxes and cuts to public spending.[8]

References

  1. Herald: Oxford economist cautions against North Sea oil grab 25/4/14
  2. Financial Times: Beware the global impact of a Scottish resource grab 22/4/14
  3. [1] Guardian: Cameron to promise North Sea oil revolution 24/2/14]
  4. http://www.bbc.co.uk/news/business-26315319 12/2/14
  5. http://www.bbc.co.uk/news/business-26315319 12/2/14
  6. Scottish Government: Government Expenditure and Revenue Scotland 2012-2013, March 2014, Scotland's Public Sector Accounts (page 20)
  7. http://www.bbc.co.uk/news/uk-scotland-scotland-politics-27602204 28/5/14
  8. HM Government, Scotland Analysis: Macroeconomic and fiscal performance

Rights to ownership

The Yes campaign claims that 90% of the North Sea oil and gas reserves are rightfully theirs.[1] According to the ‘equidistance principle’ used to identify maritime borders[2], whereby a median line can be drawn through the North Sea, the majority of the oil and gas is within Scottish territory. It is widely assumed that an independent Scotland would be awarded 85% (a 'geographic' share) of the remaining oil and gas fields[3] . .

Fiscal and regulatory climate

The SNP plans to support Scotland’s oil and gas industry with a more stable fiscal policy[4].

Current Revenue

The fall in North Sea revenues was down to unplanned disruption. A gas leak and evacuation at the vast Elgin oil field in the North Sea a year ago, which led to an 11-month unplanned shutdown, was by far the biggest cause of the slump in oil and gas production[5].

Short-term revenue predictions

First Minister Alex Salmond has claimed that “record capital investment” has seen the amount invested in the oil and gas industry double since 2010. He added: “This will reduce tax receipts in the short-term but maximise tax revenues in the future. [6] “For the future, Oil and Gas UK forecasts that production will increase by 14 per cent between 2013 and 2018".

Longer term outlook

The Scottish Government predicts that there are still 24 billion barrels-worth of oil in the North Sea, equating to estimated revenue of £1.5 trillion.[7] The Yes campaign claims that this is over ten times the nation’s share of UK debt.[8]

Leading oil economist at the University of Aberdeen, Professor Alex Kemp, using financial modelling to set out “commercially viable" projects for the industry following the Wood Review, in a paper published on 11 September[9], argues that the 99 finds could be made by 2045, and outlines 58 more which he says will be “uneconomic" by 2050 but could become viable again as technology improves. Prof Kemp, who factored in expected government tax relief for new exploration, said oil prices are likely to be “much higher” by 2050.

Oil Fund

Following the example of Norway, the Scottish Government will set up stability and sovereign wealth funds, which would protect against yearly fluctuations in oil and gas prices, as well as invest in Scotland’s future financial security.[10]

References

  1. http://www.yesscotland.net/answers/what-about-oil-independent-scotland
  2. http://en.wikipedia.org/wiki/Equidistance_principle
  3. Scotland's Decision: 16 questions (Jeffery & Perman, ed) Question 2 by Angus Armstrong and Monique Ebell (Birlinn)
  4. [Chapter 8: Environment, Rural Scotland, Energy and Resources, Scotland’s Future, http://www.scotland.gov.uk/Publications/2013/11/9348/12]
  5. Scotsman: Scotland’s cash from North Sea drops by £4.4bn 24 August 2014
  6. Scotsman:GERS figures show fall in oil and gas revenue 12 March 2014
  7. http://www.yesscotland.net/answers/what-about-oil-independent-scotland
  8. http://www.yesscotland.net/answers/what-about-oil-independent-scotland
  9. Scottish Financial News: Oil economist predicts new North Sea bonanza 11 Sept 2014 (retrieved same day)
  10. Scotland’s Future Chapter 8: Environment, Rural Scotland, Energy and Resources