Joan McAlpine: Slick spinning over UK's oil and gas revenues

THERE weren't many laughs in the Megrahi row: mass murder and misinformation are hardly the stuff of comedy. But one key accusation did sound like a stab at absurdist humour.

This was the incredible suggestion that the Scottish Government had something to gain from an oil deal with BP. It's absurd because Scotland has no leverage whatsoever in oil-related matters. We don't control our own oil revenues, let alone Libya's.

BP currently extracts about 400,000 barrels of oil and gas from the North Sea a day. The company has handed the Treasury 70 billion in tax since it began operating in the sector in 1965. In this time, Scotland has not received a penny in revenue from BP, or anyone else operating in the North Sea. No corporation tax. No exploration fees. No VAT. No income tax from those it employs.

It is extraordinary that this injustice - that's what it would be called if it happened in a developing country - has not become more of an issue. In the past week, I have heard several Radio 4 debates and read many well-meaning articles about the safety of offshore drilling in the North Sea. There was no acknowledgement that Scotland perhaps ought to participate in the decision-making on these issues.

The term "UK oil reserves" was used unselfconsciously by British politicians of all persuasions, including the Green MP Caroline Lucas. Nobody appeared to have any inkling that "UK oil reserves" might be an irksome phrase in some parts of the kingdom.

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.

And does this matter? 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. BP has its troubles in the US. At home, life is good, at least for other oil companies.

There was much excitement in the petrochemical world last month when 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 billion barrels. Shares in the companies involved have risen sharply and analysts believe the find could be just the first in a part of the North Sea that was not expected to offer any significant new discoveries. Energy minister Charles Hendry is very clear about the importance of North Sea oil's contribution to the UK economy as a whole. That is why the new coalition government has awarded a record number of exploration licenses (no Scottish input here either). The annual economic report from the industry organisation UK Oil and Gas, published this month, said the North Sea was the engine that would power the UK out of recession.

Mike Tholen, the report's author, said: "Contrary to the general perception that reserves are dwindling, the oil and gas produced from beneath our seabed still meets the vast majority of this country's primary energy needs over the year - about 94 per cent of our oil demand"

Tholen claims that for every 1 of private investment in oil and gas production, the Treasury has received 1 in tax revenue. Last year , the North Sea sent 6.4bn to the Exchequer, a fifth of all corporation tax in the UK. And that was a bad year.

About 50bn of oil related tax is expected to flow from Scotland into the Treasury over the next six years, more than what will disappear from the Scottish budget in cuts. Yet far more space is taken up discussing Scotland's alleged subsidy from England and higher public spending. The failure to include our oil revenues in such statistical exercises masks the fact that subsidy is actually flowing from north to south.

Though oil is accepted as being crucial to the UK economy as a whole, Scots appear to have swallowed the argument that it is of little consequence.

It's extraordinary that oil plays so little part in Scottish political discourse. Even the Scottish National Party sometimes seems to downplay its significance - though its opponents would probably disagree.

The SNP produces regular press releases on the subject. But we are a long way from the "It's Scotland's Oil" heyday of the 1970s. Oil does not feature in the campaigns section of its website, for example, unlike the case against Trident or the battle to save bank jobs.

It is left to others, such as the oilof website, to assert the central importance of this issue to the nationalist movement.

Oil revenues do feature in the war of attrition regarding whether or not an independent Scotland would have a budget surplus or deficit. According to official Treasury figures used by the SNP government in June, Scotland would be in surplus by 1.3bn in the last year for which figures were available 2008-9.

The opposition immediately countered that Scotland was in deficit when oil revenues were removed from these figures, as though the bonanza beneath the seabed were some kind of false accounting, or that including it made us greedy or unreasonable.

The two main technical arguments levelled against the use of oil revenues in predicting Scottish wealth are false and contradictory. First, we are told that the revenues are volatile and would dominate the smaller Scottish economy, making it vulnerable to fluctuations. This argument was put forward by the Calman Commission on Scottish devolution. Yet Professor Alex Kemp, the oil expert who advised the commission, said any variations in price could be dealt with through borrowing powers and establishing an oil fund such as that built up by Norway.

The suggestion that oil money is somehow too big for Scots to handle also undermines the argument that revenues are running out. Recent finds and bullishness from the industry show that is demonstrably untrue. As false, in fact, as the suggestion that an oil deal lay behind the compassionate release of Abdelbaset Ali Mohmed al-Megrahi.

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