THE prospect of another North Sea oil boom in the decades ahead has been rejected by the head of the UK’s economic watchdog.
Robert Chote, chairman of the Office for Budget Responsibility, told MSPs that the amount of oil recovered from the North Sea has fallen for the past 13 years. This may stabilise, he added, but there is no likelihood of an increase.
Alex Salmond has insisted production levels are poised to rise in the coming years after a £14 billion investment. It is expected that North Sea revenues would be central to the economy of an independent Scotland.
But Mr Chote told Holyrood’s finance committee that the OBR has been “repeatedly over-optimistic” in predicting an end to the the slump in the amount of oil being recovered.
“It hasn’t - it has continued to decline,” he said.
“We continue to assume that having fallen for 13 years on the trot, we are going to see a period in which production stabilises and that’s a reflection on the amount of investment that’s going on in the industry.
“We’re assuming that’s sufficient to arrest the fall in production.”.
The Department of Energy and Climate Change (DECC) has been predicting “year after year” that the decline in production would slow down, Mr Chote added.
“It never does - it continues to go down. We’re hoping that at some point, the trend will cease to be a trend and we’ll actually see the flapping off as expected.”
‘Pretty straight downward line’
Mr Chote also rejected Scottish Government criticism that the body did not take investment in the North Sea into account in its predictions.
“If you were to come down from Mars and look at the path of oil production over the last few years, you will see it’s a pretty straight downward line.
“I suspect the puzzled Martian would look at our expectation that oil production is now going to go flat over the next few years and say `Why on earth would you not expect this continuous decline that we’ve seen over the last decade to continue?’.
“The reason for that is precisely the increase in investment.”
Asked if he was predicting that production levels would “stabilise rather than increase,” he added: “Yes.”
The oil and gas industry has previously written to the OBR claiming record investment levels would boost production, but “subsequently they were disappointed by the level of production”.
The economist also rejected claims that the OBR’s estimates on oil prices are at the “pessimistic” end of the scale.
The Scottish Government has clashed with the OBR in recent years over expected oil revenues. The watchdog predicts that the the first year of independence, 2016/17, will see oil and gas receipts of about £3.2 billion, then £3.4bn the year after.
The SNP Government predicts this will be closer to £6.8-7.9 billion in its white paper in the first year of independence, then rising to £7-9.2 billion in 2017/18.