Need to keep the home fires burning
‘No’ camp is muddying the waters on Scottish oil, believes Stuart Darling
IT is the original trillion pound industry. Yet for all its value, the oil and gas sector has existed only in the fringes of the Scottish psyche. The impression is of huge sums of money flowing out to sea in investment – even greater wealth returning with the tide. But Londonbased political parties have broadly focused on the mortality of the industry rather than the potential.
Curiously, the oil and gas industry was not mentioned once as a possible career opportunity during my high school or university days. And so the story goes for thousands of Scots in a country that is home to one of the world’s most technologically advanced industries.
Many skill sets are needed to realise the large scale investment in the North Sea. Around 440,000 people work in the UK oil and gas sector and this is set to grow by 15,000 over the next five years. It would be good to think we had a workforce in Scotland ready to meet this demand.
I am involved in the offshore Seismic Survey business. Last year, there were more survey vessels in the North Sea than ever before. And 2012 saw the UK’s largest ever response to a licensing round with more companies looking to drill in more blocks.
Oil and gas is the single largest industrial UK investor; a third of all UK industrial investment is in the sector. Yet this is rarely highlighted in the independence debate. The UK economy isn’t as diverse as the antiindependence campaign claims.
In a recent online Q&A, Alistair Darling, head of the Better Together campaign, was asked two important questions about oil and gas:
1. In the event of separation (sic), do you think the UK will gladly hand over 90% of the oil like the SNP assert? Wouldn’t the UK argue that since it invested in oil and gas, it should have a larger share?
2. The SNP claims 90% of North Sea oil and gas revenues by virtue of geography but there is no Westminster/Holyrood agreement to back up the claim. As a UK asset that would need to be negotiated over in the event of Independence, then on a population basis Scotland may only be entitled to 10%. What is your view on the share of North Sea oil and gas revenues that an Independent Scotland would legally expect?
Darling’s response was: “Both these questions are difficult to answer in that it would have to be subject to negotiations between Scotland and the rest of the UK. That’s not the only question. Who would meet the massive decommissioning costs in the North Sea, for example. This is an example of one of the many issues that could take some years to negotiate.”
This characterises the anti-independence campaign: suppress the realities of Scotland’s wealth and create ‘unanswered questions’ where questions don’t exist.
First, oil and gas revenues will be determined by the same international law that governs the rest of the world – the UN Convention on the Law of the Sea. Geography determines ownership of natural resource and Scotland is fortunate to have an abundance of oil and gas, with 90% of current production in Scottish waters. Offshore revenues being distributed by population share is a non-starter.
Second, private business operates the oil and gas sector in the UK. Alistair Darling is fully aware of UK regulatory rules that operators have the financial responsibility for ensuring satisfactory decommissioning which accounts for only about 10% of the £300 billion of capital invested in exploration, appraisal and production up to the end of 2010. Costs are similarly dwarfed by the £293bn paid in corporate taxes over the past 40 years.
The full potential of oil and gas has yet to really feature in the referendum debate. Instead, the focus has been on how long it will last.
Establishing a Scottish National Oil Company, for example, is one option for fundamental change. Improving the link between education and the industry would also be a big step forward, with perhaps initiatives to establish offshore apprenticeships. Environmental groups could also be engaged in discussion about how to manage the process and proceeds.
The industry has invested heavily on maximising recovery from some exist- ing fields. But it is only happening in select cases, as many operators can’t access the technology and capital required. A National Oil Company could act as an enabler by providing financial support for independent operators.
It could be stipulated in the licensing process that a company won’t be allowed to start a development programme without detailing a strategy for maximising recovery. The Norwegian licensing process has already advanced in this manner and it is no coincidence that their National Oil Company, Statoil, is considered to be one of the world’s leading companies in enhanced recovery techniques.
It isn’t too late for Scotland. But if we leave the industry in the hands of the UK government there is a high risk that we’ll fail to use these years of financial wealth to diversify our economy sufficiently.
Scotland’s society suffered badly when our heavy industries were dismantled under the UK government. Only a Yes vote next year will ensure that we can enhance our economy to enable a smooth transition on the day that the oil does run out. The author, Stuart Darling, is Services Director for a leading service and technology provider to the seismic survey industry. He is writing in a personal capacity; the views expressed are his own and do not necessarily shared by his company.
Legal guidelines make ownership of oil and gas reserves perfectly clear, despite what politicians might say
Stuart Darling feels the industry’s potential is being undersold