Battle for Britain's oil under way as SNP told: hands off

Published on 04/09/2007 00:09

THE Westminster government will today launch a full-scale assault on Alex Salmond's push to seize control of oil and gas revenue, telling an industry conference that the Nationalists' plans are "flawed", "foolhardy" and "parochial".

David Cairns, the Minister for Scotland, will shatter the fragile truce between London and Edinburgh when he tells delegates at the Offshore Europe conference in Aberdeen that the SNP proposals would create instability and scare off investors.

The SNP made clear in its policy document of 100 days in power that it still wants a slice of North Sea oil revenue, even if it does not achieve total fiscal autonomy through independence.

But Mr Cairns will say today that the economic case "for devolving North Sea revenues is flawed, and Scotland's interests are best served by powers remaining reserved to Westminster".

It would be "foolhardy" to take a parochial approach to such a crucial industry, he will warn, in remarks that are bound to inflame the SNP government.

He will tell the audience that North Sea oil and gas is "correctly" seen as a UK resource.

"The UK government has no intention of devolving oil and gas powers to Holyrood and there is a vast array of sound reasons for our constant and unwavering position on this issue," Mr Cairns will say.

The minister will also warn that as demands for energy rise in the future, the UK must be in a position to take advantage of its remaining reserves.

"There are many sound reasons why powers over the issue remain reserved to Westminster and I have yet to see a convincing counter-argument to persuade me otherwise.

"The interests of both Scotland and the UK are best served through continued economic union and the benefits which accompany a UK-wide approach.

"Our thinking on this issue is therefore unequivocal: introducing needless uncertainty into an 11 billion industry which supports half a million jobs is not an option for the UK government."

The First Minister, a former oil economist, will also address the conference early today.

He is not expected to openly call for more powers over oil and gas revenue, although he will criticise the windfall tax inflicted on the industry by Gordon Brown when he was Chancellor.

A source close to Mr Salmond dismissed Mr Cairns' remarks. "The First Minister will make a substantial and positive address at Offshore Europe about the range of issues across the industry - in contrast to the narrow and negative remarks by Mr Cairns, who is not even an energy minister.

"The UK government has changed North Sea taxation innumerable times, and the Energy Minister has changed even more frequently than the Secretary of State for Scotland over the last ten years, resulting in anything but stability. One very damaging result of this disarray is that the UK is in danger of missing the boat over carbon-capture technology."

Industry sources also played down the impact a possible transfer of revenue might have. Energy expert David Hunter, of the Dunfermline-based consultancy McKinnon & Clarke, said the impact on oil pricing was driven mainly by developments abroad: "Global oil prices have to deal with more politically unstable situations than that between the differences of the English and Scottish governments.

"The most important thing to maintain stability would be for the Nationalists to be seen as oil and gas industry friendly."

Sally Fraser, a spokeswoman for the UK Oil and Gas Industry Offshore Association, said the industry's main concerns were about the windfall tax and the failure to provide a "clean break" from decommissioning costs when selling assets.

The latest missive from Westminster partly plays into the SNP's hands, where Mr Salmond has hoped to subtly engineer tensions by highlighting differences with Scotland without being the first to throw the grenade.

Relations between Westminster and the SNP had been initially fractious after the May election win.

But Gordon Brown had largely set aside his tribalism on entering No 10 when he was greeted with a thwarted terrorist attack in his first hours as Prime Minister.

Mr Salmond has also been at pains to portray himself as a statesman rather than a professional contrarian, when, on his first visit to Westminster, he pledged to work with the government on counter-terrorism.

He has confined his digs at Mr Brown to remarks about his "outdated" views on the concept of Britishness.

Hostilities had been much more pronounced between the SNP leader and Tony Blair, particularly during Mr Blair's controversial trip to Libya when the SNP had accused him of striking a secret deal over transferring the convicted Lockerbie bomber.

Last month, the Scottish Government published Reporting on 100 Days, a review of the SNP administration's early achievements. The document devoted only two sentences to oil and gas, simply stating that Holyrood wanted meetings with ministers, to start discussions on "options for transfer of responsibility for our oil and gas resources to the Scottish Parliament".

At the time the 19-page report was published, opposition parties criticised the SNP for failing to point out that ministers in London flatly opposed handing over any control of oil revenue north of the Border.

ANALYSIS

Fighting over goose which has already laid its last golden egg

JAMES KIRKUP

IF LABOUR'S first major attack on the SNP administration in Edinburgh is unsurprising, then the subject of the assault is even more familiar.

Since Labour's disastrous first weeks following the May election, Gordon Brown's forces have been nursing their wounds, regrouping and planning for the day they went back on the offensive.

The Scotland Office in London has been strengthened, with the promotion of David Cairns and the appointment of John McTernan, the ultra-Blairite architect of Labour's Holyrood election campaign.

Today marks the first salvo from the newly enhanced team, but the decision to target North Sea oil suggests that Labour's tactics have not changed significantly since May.

This is because the black gold beneath the waves is absolutely crucial to almost every claim and counter-claim about the economics of Scotland within the Union and outside it, and especially those made by Labour and the SNP. The exact importance of oil both politically and economically tends to track the market price of the black stuff, which in turn dictates how profitable North Sea oil is for both industry and government.

During the 1970s, the SNP made hay with its simple slogan "It's Scotland's Oil," helped by an international oil price pushed up to a record $40 a barrel by the OPEC oil shock of 1973 and political tensions in the Middle East. And in the early 21st century, crude oil prices have again soared, recently remaining well above $70.

In a minefield of disputed facts and contested figures, it is uncontroversial to state that, whatever its price, North Sea oil is hugely important to the Scottish economy. According to some estimates, it accounts for more than 6 per cent of its economy and more than 20 per cent of its tax revenues.

Those tax revenues are the rock on which the SNP's economic plans are founded: during the Holyrood election campaign, the party promised that they would be saved in a ring-fenced "oil fund", a 90 billion national piggy-bank that would tide over an independent Scotland in times of trouble.

That pledge drew criticism during the campaign, with some economists arguing that an independent Scotland would in fact have to spend all those oil revenues immediately simply to maintain existing public spending levels. Hypothetical economic debates on the topic continue to this day.

But Labour means to pre-empt even that hypothesis: the intention is that there should be no debate about what Scotland could do with tax from the North Sea, because Scotland will not get that tax.

Quite simply, by insisting that Scotland will have no claim on the oil, Labour is trying to persuade voters that an independent Scotland could not survive economically.

Such warnings have found some traction with voters in the past, playing on fears that independence would be an economic gamble. Yet they also bear a risk for Labour, allowing the SNP to counter that Mr Brown's party is putting the interests of the UK before those of Scotland.

Mr Cairns' words today will once again reignite a debate that has been a staple of Scottish politics for decades. But the fight about oil cannot last forever, any more than the oil itself can.

According to UK Oil and Gas, Scottish oil production will fall from three million barrels of oil a day today to less than a million by 2020. In 1999 Britain was the world's sixth-biggest producer of oil and gas; by last year, it was the 12th.

When it comes to oil, the danger for both Labour and the SNP is that they end up missing better economic opportunities because they are too busy fighting over a goose that has laid its last golden egg.

OIL INDUSTRY ON A HIGH AS CONFERENCE OPENS ITS DOORS

THE Offshore Europe oil conference opens in Aberdeen today (with the industry enjoying some of its best times for years.

Prices are high, exploration has returned to levels not seen for a decade and fresh reserves are being found. "This is one of the healthiest states the oil industry has been in for the last 15-20 years," says Mark Thomas, spokesman for the Offshore Europe Partnership, the organisers of the exhibition and conference.

"There was a period about a year ago when oil prices were reaching record highs and that has been seen again in the last couple of months. That doesn't always mean a good thing for the industry and everyone else, as higher oil prices cause higher costs at the other end, but the companies in the 'upstream' side of the business - exploration and development - have generally done very well. Of course investment in the North Sea in the longer term has to go down because there are fewer large facilities being built." He added that Chevron announced recent discoveries west of Shetland, were one of the biggest offshore finds in the UK for about a decade.

RESCUE SHIP CUTBACKS

CONCERNS have been raised by oil workers in part of the West Shetland field who now have a single multi-purpose emergency rescue vessel - instead of three.

Some workers fear the new vessel may not be able to handle a major emergency, nor operate in severe weather.

Previously, three smaller support vessels serviced the BP-run Schiehallion and Foinaven production vessels and the Paul B Lloyd drilling unit.

Last night a spokesman for the OILC oil union said: "Strictly speaking, this new vessel is within the law.

"However, it is based on computer-generated programmes working on the premise that it does not foresee two major disasters happening at once."

A spokesman for BP said: "The multi-role vessel has been upgraded with the addition of a second daughter craft and BP now also has a search and rescue helicopter based at Sumburgh on Shetland, designed to provide additional support and to enhance overall capability in severe weather."

NEW AIR LINK TO TEXAS

THE first direct flights between Aberdeen and Houston, the Texan oil capital, are to start in January.

The flights will be run by Aberdeen-based City Star Airlines which beat off competition from KLM and BMI.

The airline, set up a few years ago by a former check-in clerk, will operate four return flights each week with fares and timetables to be announced soon.

The ten-hour flights, which could cost around 2,500 return, cut travelling via London.

Kevin Brown, managing director of Aberdeen Airport, said: "The introduction of Aberdeen's first-ever long-haul flight is a major milestone in the history of this region and a statement of intent from our airline partners on their commitment to unrivalled choice and opportunities."

Mr Brown said there had been calls for a direct service between the two oil capitals for years.

The new service is believed to be the outcome of successful discussions at the Offshore Technology Conference in Houston earlier this year.