Can oil and gas fuel an independent Scotland's economy?

Published on 13/12/2006 01:36

Key quote

"North Sea oil production peaked in 1999 and gas production in 2001. Both are currently declining by about 10 per cent per year and there is little chance of that trend being reversed. New fields continue to be discovered and developed, but are much smaller." - TONY MACKAY, OIL EXPERT

Story in full IT WAS the soundbite that defined a political epoch. "It's Scotland's oil" was a powerful and potent political slogan that gave the organisation that coined it, the Scottish National Party, a powerful weapon in the battle for independence.

This simple phrase brought political problems to the UK governments of the time - Labour and Tory - as it echoed across Scotland, helping to define the mood that gave rise to the first wave of nationalism.

Today, that slogan - which was coined in 1972 by Gordon Wilson, then a party vice-president but who went on to lead the Nationalists - resonates still.

For oil, and its contribution to Scotland's economy, is still at the heart of political debate north of the Border.

The SNP still uses oil - more accurately oil and gas - as the basic building block of its economic strategy.

The revenue oil brings to the Exchequer forms the basis of the Nationalists' claims that Scotland more than pays her way in the world and could be a prosperous, wealthy, independent nation.

Without oil, even the SNP's own figures would show that Scotland was running a substantial deficit. The black gold, discovered in the 1960s and on stream by the 1970s, is the fuel which powers the SNP's internal combustion engine.

The Nationalists also claim they could use funds from the taxes on North Sea oil to set up an "oil fund", similar to Norway's, to provide an investment fund for Scotland when the oil runs out, as it will do by around 2030.

So how much oil does Scotland have? What contribution does it make to the economy? And could it be the economic foundation of an independent Scotland?

As with most aspects of the constitutional debate, hard facts are difficult to come by.

The SNP says its figures for the proportion of oil revenue that comes to Scotland are robust and based on sound academic evidence.

Their unionist opponents, with Labour in the vanguard, bitterly dispute these claims, arguing that the nationalists overestimate the share of North Sea oil revenue that would come to an independent Scotland.

They argue that the SNP makes the wrong assumption on the boundary that would have to be drawn across the North Sea and refuses to accept that most of the gas off Britain's eastern shores is in what would be English waters.

Few experts contacted by The Scotsman doubted that the oil was Scotland's, but there is considerable debate over the gas element and, therefore, the income the SNP claims would come to an independent Scotland from the North Sea.

KEY QUESTIONS

NATIONAL HOLIDAYS: Would Scotland have its own national holidays?

The expert says: Niall Stuart, Federation of Small Businesses: "A new government could bring in more holidays. We understand the attraction of extra holidays to celebrate our national identity, but businesses are ultimately concerned about the cost in terms of lost production."

The nationalists say: Alex Neil, SNP culture spokesman: "St Andrew's Day would be a day off work. Burns night may also be celebrated more and an independence day celebrating Scotland's new status could be introduced as a public holiday."

The unionists say: Jamie McGrigor, Tory culture spokesman: "Scotland is getting a national holiday to celebrate St Andrew's Day anyway. Having too many holidays will disrupt business and communications between the UK."

TRANSPORT: What would happen to Scotland's transport network?

The expert says: David Begg, former government adviser on transport: "It all depends on the government in power. Scotland has had record levels of investment in transport and I would question how an independent Scotland could sustain that."

The nationalists say: Fergus Ewing, SNP spokesman on transport: "We would improve the road and rail network, build a new Forth crossing and increase the number of flights to Europe."

The unionists say: Bristow Muldoon, Labour policy forum: "An independent Scotland would have to subsidise rail and road routes that currently make enough money from working across borders."

Separating the 'ownership' of oil and gas as easy as drawing a boundary in the waters around Britain

RESERVES

The North Sea will run out of oil and gas. The question is, when. The United Kingdom Offshore Operators' Association predicts that production will fall below one million barrels per day before 2020.

The UK government's energy review said production will be reduced from just under 3.5 million barrels a day now to below 1.5 million by 2030.

THE EXPERT SAYS: Tony Mackay, the managing director of Mackay consultants, says: "North Sea oil production peaked in 1999 and gas production in 2001. Both are currently declining by about 10 per cent per year and there is little chance of that trend being reversed.

"New fields continue to be discovered and developed, but are much smaller."

THE NATIONALISTS SAY: Stewart Hosie, the SNP's Treasury spokesman, says: "The Department of Trade and Industry estimates proven and possible oil reserves of up to 38 billion barrels. So far, 35 billion barrels have come out."

THE UNIONISTS SAY: Derek Brownlee, the Tories' Holyrood finance spokesman, says: "The real question is when it is no longer commercially viable. That depends on the oil price, the costs of extracting the oil, including the tax regime, and the level of reserves available. It's difficult to tell how these factors will combine."

REVENUE

According to the Treasury, the estimated revenue for this year is 10.4 billion, rising to 12.2 billion in 2009-10 and dropping to 11.8 billion in 2011-12.

There are no predictions beyond that and much of the revenue depends on the price of oil.

THE EXPERT SAYS: Stuart Haszeldine, professor of sedimentology at Edinburgh University, says: "Barring catastrophes, you can be relatively sure of oil revenue for two years. When you get beyond that it becomes more and more difficult to predict."

THE NATIONALISTS SAY: Mr Hosie says: "Scotland would benefit from about 65 billion in revenues over the next few years."

THE UNIONISTS SAY: Malcolm Bruce, the president of the Liberal Democrats, says: "Ball-park figures might be 40 billion; 20 billion and 10 billion - a small and declining proportion of the revenue required to fund Scotland's public services."

SCOTLAND'S SHARE

The SNP claims that Scotland would receive 95 per cent of oil revenue, but its calculation is based on the total revenue from oil and gas. Its opponents say that they do not take into account the large number of gas fields in English waters.

THE EXPERT SAYS: Prof Haszeldine says: "The vast majority of the oil is in Scottish waters. With practically all of the gas in the UK in the southern North Sea, that is in 'English' territory." He says it is hard to separate the revenue from oil and gas.

THE NATIONALISTS SAY: Mr Hosie says: "A comprehensive study of this was undertaken by Aberdeen University. At current oil prices, the percentage of revenue accruing to Scotland would be up to 95 per cent."

THE UNIONISTS SAY: Mr Bruce says: "A total of 100 per cent of what falls north of any median line would be Scotland's, but settling of that could create a long-term dispute."

THE BOUNDARY

Devolution forced the UK government to define the boundary between Scotland and England because of the different legal systems and for fisheries protection.

THE EXPERT SAYS: Dr Stephen Neff, of Edinburgh University law school, says that international law dictates that two countries should first negotiate.

However, if England insisted that the boundary should go at 45 degrees from the Border - giving some oil fields to England - but Scotland objected, the matter would go to arbitration. "It would be very easy for the English to argue their case and then the matter would go to the World Court of Jurisdiction in The Hague."

THE NATIONALISTS SAY: Mr Hosie says: "Scotland and England are two mature nations and I have no doubt we will be able to agree."

THE UNIONISTS SAY: Lord Foulkes, vice-chairman of Labour's Scottish election campaign, says: "By looking for a fight with Westminster, Scotland would not be in a position to focus on economic growth and public service delivery."

SNP OIL FUND

The Nationalists say that Scotland should invest an unspecified proportion of the 10 billion a year oil revenues to build up a futures fund. If it was as successful as Norway's, it would leave a substantial legacy for Scotland when the oil runs out.

THE EXPERT SAYS: Mr Mackay says: "The oil and gas industry could certainly be an important part of an independent Scottish economy in the future, but it could not provide the financial bonanza some people have claimed recently."

THE NATIONALISTS SAY: Mr Hosie says: "An oil fund is the best way to guarantee that our oil will bring benefits for today and for all future generations of Scots."

THE UNIONISTS SAY: Mr Bruce says: "In principle a fund could be set up, but how will the SNP divert tax revenues on which their promises depend?"