Salmond slips on oil

The argument about the prospects for North Sea oil took centre stage this week in the debate about Scotland’s independence, as David Cameron and Alex Salmond both hosted meetings in or near its petro-economic centre, Aberdeen.

The meetings were timed to coincide with the publication of a report by Sir Ian Wood, a “neutral former oil executive”, on how to maximise the potential of North Sea reserves, says The Daily Telegraph. Sir Ian predicts at least £200bn in future oil and gas revenues, but only with a “coherent fiscal and regulatory regime”.

Shrunken margins and looming decommissioning costs will require lenient tax treatment; a new regulator would be needed to supervise licensing and ensure maximum collaboration between firms to explore and develop new fields.

David Cameron pointed out that the “broad shoulders” of the UK government would be more able to provide the necessary support. Alex Salmond, a former oil economist, does “not take kindly” to “outsiders” having a say, says the Telegraph, but there are “questions that need to be answered” posed by people “even more expert than he”.

The “idea of Scotland as a Caledonian Norway remains an article of faith” for Salmond, but his arithmetic is questionable, says John McDermott in the FT. Salmond claims that, with sole stewardship of the oil, Scotland would be the sixth-richest country in the world on a per-capita basis.

This would not only support public spending (about 10% higher than the UK average), but would also allow it to set up a sovereign wealth fund.

What this ignores, however, is the “large share of profits” that would go to overseas oil firms. The SNP’s estimates of future production are also “significantly higher” than those of the government watchdog, the Office for Budget Responsibility.

Neither Cameron nor Salmond won the argument, says The Guardian. But opinion polls show that such debates are having an impact. There is “much more to say” before the referendum.

  • Gorje

    Money Week’s attitude to Scottish independence offers no surprises and follows the usual metropolitan narrative so beloved I am sure of its readers. Nevertheless to prick the cozy group think consensus I offer a few thoughts before beating a hasty retreat.

    (1) The oil remaining in the North Sea is worth over £1 trillion at wholesale value. There are at least 15-24 billion barrels of oil remaining which will continue long into the 21st century. Over 90% of the tax revenue will go to an independent Scotland which can help to establish a national oil fund for future investment.

    (2) Westminster rule has caused instability in the sector, a failure that has been continuous over the long term. There have been 16 fiscal and tax changes in the North Sea by UK Governments in the past 10 years. All the evidence suggests that it has been mismanagement from Westminster which has caused instability in the North Sea sector.
    As Malcolm West of Oil and Gas UK said at the time of George Osborne’s tax raid,

    “We’ve had three massive tax hits in the last nine years; that just cannot go
    on, and it’s given this country a terrible reputation for fiscal instability.”
    (February, 2012)

    3. The UK’s North Sea legacy can be summed up in three words “discovered, extracted, squandered”. Former Chancellor Dennis Healey conceded that North Sea wealth has been squandered by Westminster and even Alistair Darling admitted this was an error. A generation of oil wealth has flowed through Aberdeen – yet despite a booming energy sector, the city needs food-banks to feed its poorest residents.

  • EM99

    Apparently they’ve just discovered a whole lot more oil off Scotland’s coast.