Oil price dangers

THE issue of oil reserves arose again this week and the debate was over the number of billion barrels still available for extraction. The numbers varied significantly, but I would imagine to most people comparisons of billions is not enlightening.

The real issue is twofold: first, the amount of oil remaining and second the revenue from these reserves, the latter being less per barrel than in the past due to the increased costs of extraction.

Thus there are two variables to factor in and the resultant spread of the possible revenue streams increases significantly.

For an independent Scotland to rely on such a highly volatile income stream is worrying, since it would constitute a very high proportion of the total income in any year.

Oil is a huge asset, but basing future revenue streams on the most optimistic assumptions of future production and price as the separatists are accused of doing is dangerous.

It is impossible for nonexperts to know which expert is correct, but one fact can throw some light on the impact. The price of Brent Crude – a “benchmark” – is factual and published daily and thus any volatility in price is clear over a period.

Last month it peaked around $114 as a result of world events and concerns over a drop in supply and today the price is $102. (I believe the price before that has normally been somewhere in between.)

That 11.7 per cent fall is itself a significant variation, but a large proportion of that price will be taken in production costs and only the excess constitutes revenue.

I do not know what that proportion but, for example, if it were $70 the revenue stream varies from $44-$32 per barrel, a percentage swing of 37.5 per cent and the percentage variation in revenue increases significantly.

These numbers demonstrate both the huge swings in revenue that could result and the difficulty that would cause in yearto-year budgets in an independent Scotland.

RAYMOND PAUL Braid Farm Road

Edinburgh