Time to look again at Scotland's Oil

 Why do we talk about “Scottish industry” but “UK oil?” or “Scottish banks” but “UK oil”? Is this a form of internal censorship, and if so, why do we do it to ourselves?  If you use the term Scottish oil you immediately reveal your political affiliation. Yet it does lie within our waters, so the phrase shouldn’t be controversial. You might be forgiven for thinking that the ownership of North Sea oil is something of a tired old story. But recent discoveries in the waters off northern Scotland demonstrate otherwise.   Just last month a consortium of companies announced the most significant new find in the North Sea for almost a decade. The Catcher field, which lies about 180 miles East of Aberdeen, is estimated to contain 350 million barrels. To put that in perspective, the average new find is 20-30 million barrels.

The above is an extract from my Scotsman column today. I felt moved to write it after listening to the ludicrous suggestions from US senators that Scotland did a deal over Libyan oil when we don't even control our own oil. I have always been of the belief that more needs to be made of the injustice that sees massive revenues leave Scotland for the Treasury. If this was happening in a developing country there would be cries of exploitation. But we are told we are subsidised by London. And many of us believe it. Talk about psychological colonialism. The money Scotland sends south MUST inform the forthcoming debate about the suggested cuts in The Beveridge report. If the British economy is relying on oil revenues to stay afloat in the next few years imagine the difference these revenues could make to Scotland. Yet we still get conned by the suggestion, included in the Calman report, that our oil wealth is somehow bad luck, that it gives us an lob-sided petro-economy which needs England to "balance it".  Are we really so gullible as to fall for this suggestion we'd be better off WITHOUT the oil?   

Here are some useful links to the factual articles that back up my arguments.

1. The Catcher field, biggest oil find in a decade discovered off Aberdeen in June 2010
2. Petroleum World article on how there is plenty of oil left The North Sea and why oil companies often understate reserves.
3. Expert oil economist Alex Kemp explains why The Calman Commission has got it wrong on oil revenues
4. Oil and Gas UK, the industry body, on how the North Sea is "Britain's engine out of recession". 
5. The official Treasury (GERS) figures show how North Sea oil revenues would put and independent Scotland into surplus for the last three decades.
6. For more on the history of this topic go to oilofscotland.org

I should also briefly address the concerns of a friend who rightly points out that the column ignores the carbon issue. He is correct, but the topic requires a blog/column of its own. I would say that the fossil fuel levy can help us develop renewables using a tax on oil, gas and coal, but the coalition government are still withholding Scotland's share - £188 million. Carbon capture would go a long way to deal with the issue of burning oil, but again we can only really develop this properly with the tax and decision making powers of independence.  The engineering expertise developing renewables is often an oil industry spin off. The revenues we gain from having access to our own oil will allow us to give further encouragement to this kind of engineering. It would enable us to establish an unrivaled renewables sector and build the grid to transport the surplus green energy.  Does anyone honestly believe that's how Westminster will spend the £50 billion North Sea bonanza flowing its way over the next few years? 

Comments

[Lox]

I know I'm coming into this conversation slightly late...but I think that all Scottish Nationalists should be wary about talking up the prospect of prosperity from oil. Of course revenues from North Sea oil going into the exchequer of an independent Scotland would make us a wealthier country: it's an undeniable fact. So what? Politically, it's perception that counts. For nearly forty years the SNP have been pointing out that we're not benefiting as we should from an incredibly valuable natural resource, and how much impact has it had? Now that unionists can make the bland, blanket statement that "it's running out anyway. And you can't build an economy on one finite resource", it's likely to have even less of an impact-especially since the unionists are half right. If natural resources were all it took to make a country wealthy, then Singapore would be poor and Nigeria rich. Scotland's potential wealth is with innovation in science and engineering, where we already have a disproportionate impact at the pre-commercialisation stage. What we need to make us wealthy is a political and economic environment where it's easier to access capital for new businesses, where individualism and entrepreneurialism can flourish, and where we drop the outmoded ideas of state micromanagement. Given that the political follows the personal, then independence on an individual level predisposes people towards greater control of their own lives politically. Of course, given that the SNP has carefully positioned itself as a left of centre party with populist policies like universal free prescriptions and the ringfencing of budgets for free bus travel and central hearing upgrades for the elderly, that could be awkward....

[Dougthedug]

peter1958:

I've had look at the charts and tables you mention which are available on the Department of Energy and Climate Change, Oil and Gas site:
https://www.og.decc.gov.uk/information/bb_updates/appendices/Appendix7.htm

These are charts and tables of expenditure and income on the UK Continental Shelf for oil companies not expenditure and income for the Government.

You made the assertion that the UK taxpayer funded North Sea Oil to the tune of £6 Billion or £23 Billion in todays money so that it is therefore a UK asset.

A soft loan of £370 Million which has been paid back and companies offsetting exploration and capital expenditure against tax in the normal way do not make a £6 Billion taxpayers investment so neither statistic validates your original assertion.

As far as I'm aware all companies, not just oil companies, get taxed on their profit not cash flow and exploration and capital expenditure would both be costs on the balance sheet which would reduce the resulting profit to be taxed.

In 2010 oil companies can still offset their full exploration and capital costs for an oil field against Petroleum Revenue Tax (PRT) so the current position is unchanged in comparison to 1973 apart from the introduction of PRT.

"4.5 The rules allowing field-related expenditure for PRT purposes do not distinguish capital from revenue and almost all expenditure qualifies for 100 per cent relief as it is incurred."

This is from:
A Guide to UK and UK Continental Shelf, Oil and Gas Taxation - January 2008

Field-related expenditure, para's 4.5 to 4.8

http://www.hmrc.gov.uk/international/ns-fiscal3.htm

[joanmcalpine]

@peter1958 Professor Kemp is indeed an even handed academic. Two questions. Is the revenue from oil over the same period of time similarly adjusted to 2008 prices? Also, BP invested in oil extraction around the world. Does that mean its original owner, the British government, has perpetual claim on the proceeds? BP began life in 1909 as the Anglo Persian Oil Company, later the Anglo Iranian Oil Company. They were most miffed when the Iranians decided it was their oil, and nationalised it. The British government used exactly the same arguments about investment as you do here.

'After World War II, AIOC and the Iranian government initially resisted nationalist pressure to revise AIOC's concession terms still further in Iran's favour. But in March 1951, the pro-western Prime Minister Ali Razmara was assassinated. The Majlis of Iran (parliament) elected a nationalist, Mohammed Mossadeq, as prime minister. In April, the Majlis nationalised the oil industry by unanimous vote. The National Iranian Oil Company was formed as a result, displacing the AIOC. The AIOC withdrew its management from Iran, and organised an effective boycott of Iranian oil. The British government – which owned the AIOC – contested the nationalisation at the International Court of Justice at The Hague, but its complaint was dismissed.'

[joanmcalpine]

@SM753 You are correct to point out this typo which I am already aware of and which is being changed in The Scotsman. It is quite obviously a typo, otherwise why would I link to the articles offering all the correct details on Catcher capacity? Read the industry articles again on Catcher, it is hailed as a very significant find at 350m barrels. You are the one who is letting your politics get in the way. Unlike me, you write anonymously, nit-picking away instead of openly offering up solutions. I bet you never even bothered to read the links, otherwise you would have known that the initial 300 million prediction was upgraded to 350 million within weeks - see Telegraph. As to what is recoverable, I would refer you to the piece from the Petroleum website on the capacity of the North Sea and the commercial reasons why the industry tends to under-state capacity. Not that you will be interested...

[sm753]

McAlpine:

"The Catcher field, which lies about 180 miles East of Aberdeen, is estimated to contain 350 billion barrels."

Reality:

http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=3541287

"It estimates there could be as much as 300 million barrels of oil-in-place at the Catcher feature. It’s thought about half of that is recoverable. "

150 MILLION is approximately 0.004% of 350 BILLION.

Still, let's not let facts get in the way of our politics, eh?

[peter1958]

Dear Mr Dug and others,

In an effort to comply with your requests for information about UK Govt expenditure on NSO I rather cheekily e-mailed Prof. Alex Kemp of Aberdeen University to ask if he might point me in the right direction.

To my utter amazement, the good professor, sent me three .pdf charts entitled UKCS Expenditure 1970 - 2007 (in 2008 Prices), Income & Expenditure and another of Govt revenues taken from NSO.

I will happily share these with you if there is a means by which I can upload them. Or I shall forward the Professors e-mail to you as you wish.

Hat's off to Prof Kemp!

[peter1958]

Dear Mr Dug,
The Forties field was developed by BP with the aid of a £370m soft loan provided by the UK Govt and was inaugurated by the Queen on 3rd November 1975.

You can watch the programme "Crude Britannia" for yourself of course.

Then there is also the issue of capital allowances to consider. Oil companies received 100% allowances for all expenditure associated with NSO exploration and made full use of this allowance as the Public Accounts Committee Report of 1973 made plain.

Like most things in life, Mr Dug, it's not a simple matter to calculate and I merely point out what was said at the very start of the programme content.

Now, if your proposition is that NSO was self-funded by the oil companies I would be very interested to learn why you might hold that view?

After all, it was not until the Yom Kippur war broke out that NSO exploration was even considered worthwhile by many of the foreign operators - which the late Peter Walker explained was why the Tories virtually gave away 40 year non-negotiable, non-reviewable licenses - although I hold dear to the view that he was merely lining the pockets of his buddies as usual.

[Dougthedug]

peter1958:

"A £6bn investment made by UK taxpayers."

The first oil pipeline to come ashore was a BP pipeline from the Forties field in 1972. BP also developed the Forties field which they sold to Apache Corp. in 2003. Could you put a link to your source which says the field and pipeline development were funded by the UK Government?

There are several pages of information about that Forties pipeline on the web but all refer to it as a BP funded pipeline.

An example is:
http://www.onepetro.org/mslib/servlet/onepetropreview?id=OTC-2603-MS&soc=OTC

How does a commercially funded oil field and pipeline make North Sea Oil a UK asset not a Scottish one?

[Billy Carlin]

What utter garbage by peter1958. Funny how little Qatar mentioned by Doug below managed to get their oil out of the ground. Funny how Norway managed to get theirs out too - they both must have been financed by altruistic England.

It is a disgrace that we always have people like peter running down their country and it's resources for the sake of their wee cult English-funded party.

Yes peter, that is why Labour (and the Lib-Dems and Tories)is, and remains, an English asset.

[peter1958]

In a recent documentary on the history of North Sea oil the programme began with newsreel (of a young Michael Buerk I think) of the official opening of the NSO pipeline. It was stated that it had taken over 20 years from survey to pipeline production coming ashore and an investment of £6 billion.

In today's money, £6bn is about £23bn - or the cost of a Trident replacement in real terms.

A £6bn investment made by UK taxpayers.

That's why NSO is, and remains, a UK asset.

[Dougthedug]

Joan, another link which is useful to look at is the pdf on:

http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review_2008/STAGING/local_assets/2010_downloads/oil_section_2010.pdf

This is the, "BP Statistical Review of World Energy June 2010". If you go down to the production section of the document you will find that the UK (Scotland) produced 1.448 million barrels of oil a day in 2009. Qatar produced 1.345 million of barrels of oil a day in 2009.

Scotland produces more oil than a Gulf state and yet we are currently scrabbling around trying to find ways to slash public spending and holding out the begging bowl to fund national infrastructure such as a new Forth road bridge.

"Are we really so gullible as to fall for this suggestion we'd be better off WITHOUT the oil?"

Unfortunately since Scotland still votes for the Union time and time again by voting Labour the answer has to be yes.

[dramfineday]

Lassie, Lassie, calm doon for the love of god, what you need to realise is that the dosh from the North Sea belongs to us aw, and the workers in Liverpool, Manchester, Coventry and London are entitled to an equal share....(pity aboot the workers in Stranraer, Berwick, Wick, Stornaway et al) but that's by and by so stop this, "it's Scotland's oil" tosh. The Labour party conspired and succeeded in passing all the fruits of the first find to the Tories and guess what, they've done it again with the most recent batch. Aw weel, what you never had, you never miss.....back to bread and circuses (in London) as some Roman and French oiks have oft remarked.