The future of North Sea oil is one of the key campaign battlegrounds ahead of the Scottish independence referendum. The North Sea oil and gas industry employs 450,000 people across the UK. The industry paid £6.5 billion in taxes to the UK government in 2012-2013. What if Scotland decides to go it alone?
Since the first licences were issued for the extraction of oil and gas from the North Sea in 1964, about 42 billion barrels of oil have been produced by the oil industry. It is estimated there could be up to 24 billion more in untapped reserves.
Since a peak in 1999, oil and gas production has steadily declined. Maintenance work on ageing infrastructure and a spate of helicopter accidents have caused temporary halts to production in recent years.
A greater focus on health and safety following the Gulf of Mexico disaster in 2010 has had an impact, as well as an increase in taxation on North Sea production introduced in March 2011.
Fossil Fuel Exploration and Extraction
Because the geology of the subsurface cannot be examined directly, indirect exploration techniques must be used to estimate the size and recoverability of the resource. These techniques involve seismic, gravitational, magnetic, electrical and electromagnetic measurements of the physical properties of rocks, to detect the measurable physical differences between rocks that contain ore deposits or hydrocarbons and those that don’t.
While new technologies have increased the accuracy of these geophysical techniques, significant uncertainties still remain.
The majority of early estimates of the reserves of an oil field are conservative and they tend to grow with time – a phenomenon known as reserves growth.
Actually, many oil-producing nations do not reveal their reservoir engineering field data and instead provide unaudited claims for their oil reserves. The numbers disclosed by some national governments are suspected of being manipulated for strategic and political reasons.
So, what do we know for definite in relation to economy and the oil industry?
Amongst other things, we know what trend the price of North Sea oil has been following.
And we know the resulting revenue of oil and gas sales for the country’s economy.
In 2013, the United Kingdom government commissioned Sir Ian Wood to carry out a review of the North Sea oil industry. Released on 24 February 2014, Dr Ian Wood’s final report makes a series of recommendations, including the setting up of a new independent regulator. Dr Wood also recommends more investment in infrastructure to improve efficiency, and more money to be spent on exploration and exploitation of untapped reserves. This would put the United Kingdom in a much stronger position to exploit the estimated remaining 24 billion barrels of oil, the report says.
Scotland Going It Alone?
Prime Minister David Cameron believes the UK, with Scotland remaining part of the Union, would be best placed to fund future exploration and exploit the increasingly hard-to-reach oil and gas resources, and said a united UK would be better able to cope with fluctuations in oil prices.
Scottish First Minister Alex Salmond insists an independent Scotland could withstand the volatility of the oil market.
He wants to set up a Norwegian-style sovereign wealth fund – setting aside one tenth of oil and gas revenue each year – to help offset some of the problems caused by the price fluctuations.
Set up in 1990, the Norwegian fund was initially designed to help cope with the rising costs of pensions for a population that was living longer, and also to accommodate for changes in oil prices. The Norwegian fund – or Government Pension Fund Global – was worth an estimated 785 billion (£471 billion) in September 2013, and is one of the largest in the World.
The Norwegian Fund
Set up in 1990, the Norwegian fund was initially designed to help cope with the rising costs of pensions for a population that was living longer, and also to accommodate for changes in oil prices.
The Norwegian fund – or Government Pension Fund Global – was worth an estimated 785 billion (£471 billion) in September 2013, and is one of the largest in the World.
The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period, and you can think of it as the size of the economy. Usually, the GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.
If oil revenues are included in GDP figures, Scotland is shown to generate more per head of population than the UK as a whole.
Misrepresentation of Science and Disinformation
Misrepresentation of scientific data by politicians is not a new phenomenon. In 2009, Prof. David Nutts, an expert in drugs research, was effectively silenced when he presented his results on the harm caused by various psychoactive substances on health and society, and delivered his opinion on their re-classification by the UK government.
Yesterday, Patrick Dunleavy, a professor of politics at the London School of Economics (LSE), said that when Treasury officials used his research to calculate the start-up costs of independence, they overstated the figure by no less than 12 times.
Officials had briefed that, partly based on the research of Professor Dunleavy, they estimated the start-up costs for an independent Scottish Government at £2.7bn. It was a calculation of how much it would cost to set up 180 government departments, in line with recent equivalent costs in Whitehall.
The Scottish Government strongly criticised the UK Treasury’s calculations, saying that much of the practical infrastructure was already in place in Scotland.
Now, I don’t do politics on this blog. And I’m not an economist, so I could be getting the wrong end of the stick…
Above all, I care about scientific integrity, not party-politics. And I do believe the public should not be misled when it comes to solid scientific data.
Progress never does arise out of perpetuated ignorance.