Brian Wilson: Talk of second oil boom is a bust

There are huge risks for an economy in being over-dependent on a volatile commodity. Picture: Hamish Campbell

There are huge risks for an economy in being over-dependent on a volatile commodity. Picture: Hamish Campbell

74
Have your say

AS WE approach the halfway mark – sorry to depress you – in the long march to a referendum, I would nominate two stand-out moments along the route so far.

The first was publication of a Social Attitudes Survey in December 2011, which suggested that support for independence lurched between 21 and 64 per cent, depending on whether people thought they might be £500 a year worse or better off.

I guess this conclusion startled both sides, even after a pinch of salt was administered, for it was powerful evidence of how much the debate turns on personal, economic arguments rather anything more romantic, cultural or philosophical. Not so much the hand of history as the 500 quid lottery.

While neither would admit to it, both sides have accepted the thrust of that message – which explains the constant flow of claim and counter-claim around what, to true believers, must seem like tedious minutiae about the consequences of independence for people’s pockets and financial security.

On critical issues such as personal taxation, employment and pensions, those who do not want to break up Britain have a status quo to defend and continuity to invoke. Even when the facts are inconvenient, they have to live with them. The Nationalists, on the other hand, can just make it up as they go along – and that is exactly what they do.

As the former chief economic adviser to the Scottish Government, Andrew Goudie, noted in yesterday’s Scotsman much of this stuff consists of no more than “cavalier assertions with little or no foundation”. He might have had in mind the recent fabrication of “Scotland’s second oil boom”, of which more in a moment.

No Nationalist worthy of his or her salt gives a toss whether anyone would be £500 better or worse off as a result of independence. Their’s is a fundamentalist belief rather than a calculation, and their is nothing inherently wrong with that. But they know this is not how many of their fellow Scots see it – so, economic arguments must be constructed to fit their case, while contrary evidence is bludgeoned into submission.

And that leads to my second landmark event: the leaking of John Swinney’s internal paper on the economic risks of independence, which had the great merit of not being intended for the eyes of voters and, therefore, set out to be frank and honest about the massive potential pitfalls that independence would involve.

The key message was straightforward – volatile oil revenues, already in decline, would threaten the “affordability” of state pensions and unemployment benefits, never mind additional expenditure. Loosely translated, if the price of oil failed to meet expectations, Scotland – with its disproportionately high levels of public expenditure – would be in deep doodoo.

This paper is dynamite in the “500 quid” market for votes – a view borne out by the extraordinary efforts that have gone into neutralising it. No number of spin doctors can erase Honest John’s words, so the alternative approach has been to rubbish his own scenario. None of the bad things will happen because oil revenues will not fall – no, nay, never.

And that, in turn, has led to the sudden emergence of “Scotland’s second oil boom” – a phrase which did not exist even in the lexicon of cavalier assertions a month ago but is now a mandatory part of the mantra. Never has a boom been so quickly manufactured. Rarely has a cowed civil service been dragooned so urgently into producing facts on which to base a conclusion.

Within a week of Swinney’s document becoming public, the Scottish Government published its first – there’s a surprise – Oil and Gas Analytical Bulletin, a cut-and-paste job devoid of independent verification on which remarkable new claims were based. Brandishing his very own dodgy dossier, Alex Salmond proclaimed a newly-discovered £26 billion and the boom was born.

The real world offers more sober assessments. North Sea oil production this year will be fully 25 per cent down on 2011. The market is assuming a slight recovery, flattening out by 2020 at one million barrels a day – half of what Salmond is claiming as a done deal on which plans can be based. The Brent price is predicted to drift downwards from an average $106 a barrel this year to $92 in 2017.

I hasten to add that all of these are predictions that may be disproven by events. There might be wars, which drive the price up. Someone might turn the taps on, as the Saudis did in the late 1990s when the price went below $10 a barrel. The full impact of fracking remains utterly uncertain. So far, it has halved the price of gas in America, driving oil and coal out of power generation.

Even more critically, an easing of global demand is making investment decisions intensely competitive. Capital is scarce as other sectors offer greater certainty. Yet the potential value will only be realised if and when oil companies, spoilt for choices, explore and recover in the North Sea as opposed to other less costly provinces. Norway, faced with exactly the same scenario, makes no false boasts to the contrary.

None of this detracts from the fact that North Sea oil is a huge asset for the United Kingdom and would, proportionately, be an even bigger one for Scotland alone. That is obvious and nobody disputes it. But all of it points in exactly the direction described in Swinney’s paper – oil is a volatile commodity, there are lots of uncertain factors and there are huge risks in becoming over-dependent on it, as a separate Scotland would be.

That is a truthful assessment, which most people in Scotland would be inclined to accept as common sense. It is bound to give many of them pause for thought about the economics of independence, particularly in light of the read-across that Swinney conveniently sketched out for them.

These are political and intellectual challenges that the Nationalists should address honestly by acknowledging the problems for their case, which are inherent. That way, they might win respect if not the argument. Instead, they have simply cobbled together a fantasy solution based on “cavalier assertions” and then sent the troops out to parrot it from every platform and in every studio.

The whole charade of “Scotland’s second oil boom” sits uneasily with pious statements about the need for serious debate based on providing the voters with the hard facts that they crave. In fact, it makes a mockery of it. Just ask John Swinney.

Back to the top of the page