Scottish Government oil forecasts ‘out by £15.5bn’

Alistair Carmichael has said that 'serious questions' must be asked about how the SNP 'got this so badly wrong'. Picture: PA

Alistair Carmichael has said that 'serious questions' must be asked about how the SNP 'got this so badly wrong'. Picture: PA

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THE SNP has been accused of getting it “badly wrong” on its economic forecasts for an independent Scotland after figures showed a predicted £15.5 billion shortfall in oil revenues.

Analysis by the UK government shows the falling price of Brent crude would have provided £4.7bn for the Exchequer in an independent Scotland between 2016-17 and 2018-19 – significantly short of the £ figure quoted by the Scottish Government.

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Scottish Secretary Alistair Carmichael said the figures left the SNP facing “serious questions” over its fiscal policy, but the party accused the Lib Dem MP of “staggering hypocrisy” in his use of the oil price.

The oil price is on track for its biggest fall since 2008 and the second-biggest since futures trading started in the 1980s.

Conflicts in oil-producing nations such as Libya have caused the price to fall by about half, from $115 a barrel in June to $60 a barrel yesterday.

Mr Carmichael said: “On referendum day, Nicola Sturgeon and John Swinney were predicting ‘a second oil boom’. Scottish Government economists were telling us the oil price would be $110 per barrel. Now, just 100 days later, with the oil price actually standing at $60, there is a £15.5bn hole in the finances of independence.

“That is a £155 million mistake for every day that has passed since the referendum on 18 September.”

Mr Carmichael said questions needed to be asked about how the Scottish Government had gotten it so “badly wrong on this vital referendum issue”.

“We were making a decision that Scots were going to have to live with forever and the Scottish Government are sticking to wildly optimistic oil predictions that have not even made it to the new year,” he said.

Mr Carmichael said it was “totally unacceptable” and said the Scottish Government needs to take steps to “restore confidence” in any future oil analysis.

A spokesman for Deputy First Minister John Swinney said: “This is staggering hypocrisy from Alistair Carmichael, whose own UK government’s energy department was last year forecasting oil prices to reach $134 a barrel in 2018 – substantially more than the Scottish Government’s March 2013 price projection of $113 per barrel, which was in line with many independent, international forecasts.

“Instead of, bizarrely, gloating over his own government’s lower-than-expected revenues, Mr Carmichael should be doing all he should to help the industry, which has too often been subject to wildly fluctuating taxation from successive Westminster governments.

“And most independent forecasts expect the price to rise again next year, with Opec predicting a price of $110 per barrel for the rest of the decade and around $100 in real terms in the long run.”

The figures came as PricewaterhouseCoopers (PwC) warned the oil industry could be set for a year of mergers and acquisitions following the rapid fall in prices.

Its analysts said there was little expectation of a rapid rebound and that many commentators are assuming prices could remain low for much of 2015.

The company said the industry needs to adapt next year to “this new level of volatility” and described it as “uncertain times” for the estimated 440,000 employed in the sector.

Drew Stevenson, PwC’s UK energy deals leader, said: “Oil prices remaining at the current level for a sustained period will light the touchpaper for mergers and acquisitions in 2015.

“As the UK industry positions itself for a more uncertain future, we expect to see deal activity levels pick up throughout the year ahead.”

The industry could also be “increasingly cash-constrained” with new debt coming at a cost, and existing debt coming under increased scrutiny, the firm said. Matt Alabaster, PwC’s UK energy deals strategy leader, said: “While US $70 oil is not the end of the world, coming after five years of sustained high prices it has caused a maelstrom in the industry, with firms now having to heavily focus on cash and costs like never before.

“Throughout 2015, we could see some bad headlines about very good companies being hit by factors outside their control – the UK industry is not alone in having to adapt to this environment.”

Earlier this month, Robin Allan, chairman of the independent explorers’ association, Brindex, said the North Sea oil and gas industry was in “crisis”.

But Sir Ian Wood, who was commissioned by the government to review the industry, said conditions would begin to improve in 2015.

While acknowledging there would be cutbacks in the year ahead, he said some of the warnings were “well over the top and far too dramatic”.

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