THIS week’s spat over North Sea oil reserves surely misses the point. Of course the North Sea is a mature field with a limited lifespan.
That’s true regardless of Scottish independence. The strategic question is not how long the oil will last – no-one knows – but what to put in its place? The true danger lies in trying to hang on to a traditional industry beyond its sell-by date.
A new report from Citigroup spells this out, suggesting that today’s oil majors resemble the copper wire telecom dinosaurs of the 1990s swept away by mobile technology.
Citicorp’s report – Energy 2020: The Revolution Will Not Be Televised – argues that cheap natural gas exports from America (and soon Australia) will eventually force oil prices to converge on a downward path, especially if cars can use either fuel. Pre-fracking, gas prices tracked those of more expensive crude oil. Recently, they have de-coupled. Of course it’s also possible gas prices could rise againto meet petroleum markets that have moved on. I think that’s more likely if the Middle East and Ukraine go pear-shaped.
However, this only buys the global oil industry time, while accelerating the hunt for alternatives to fossil fuel. Citigroup warns that solar power can already compete on grid supply price with other fuels, in Germany and large parts of the US. Nearly a third of new electricity capacity installed in America last year was solar.
Which means Scotland/UK has a limited window of opportunity to replace North Sea oil. Personally, I think an entrepreneurial Scotland would move faster and have more of an incentive to do so. On the other hand, the SNP government has hitched its wagon to capital-intensive wind and wave power, rather than solar.
It’s free banking captain but not as we know it
WHO would have guessed that the last few weeks of the referendum would see the re-emergence of a debate that gripped Scotland two centuries ago, namely “free banking”.
This refers to commercial banking without supervision by a central bank, not buckshee accounts.
The Thatcherite Adam Smith Institute has launched a grenade into the currency debate by arguing that an independent Scotland would thrive by keeping sterling but ditching a formal currency union. This would leave commercial banks free to supervise themselves – but carry all the risk.
It was this model that allowed Scottish banks to invent current account lending in the first place. However, as the original Adam Smith pointed out back in 1776, capitalists dislike risk and prefer for the state to bail them out. Which is why central banks were invented to do the bailing.
But where does a central bank get its money? Actually, by printing it, thereby debauching the currency and creating inflation. Which is why economic liberals of the modern Adam Smith Institute would prefer to abolish central banking, starting in Scotland.
This week, despite Iraq, the US stock market hit a new record high. Reason: asset prices are riding on the back of a vast increase in central bank liquidity in the US, UK and Japan (aka quantitative easing).
When interest rates return to normal, this vast wall of inflationary cash will flow out of the world’s central bank deposits and into the real economy.
At which point, we might hear old Adam Smith laughing heartily from his grave at the bottom of Edinburgh’s Royal Mile.