North Sea oil ‘worth billions less than expected’

THE body responsible for independent analysis of the UK’s public finances yesterday dramatically reduced its forecasts for North Sea oil revenue over the next two-and-a-half decades.

Figures have been revised down but Alex Salmond says forecast is too pessimistic. Picture: Getty
Figures have been revised down but Alex Salmond says forecast is too pessimistic. Picture: Getty

The Office for Budget Responsibility (OBR) has revised its predictions to suggest around £39.3 billion will be raised in North Sea revenues in total between 2019/20 and 2040/41 – a fall of £12.6bn on last year’s projections.

When yesterday’s long-term forecasts are factored into figures already produced for the medium term, the OBR now reckons total oil and gas receipts between 2013/14 and 2040/41 will fall from last year’s prediction of £82.2bn to £61.6bn.

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The OBR’s forecasts, contained in its annual “Fiscal Sustainability Report”, were altered to take into account “unexpectedly weak production”, which has had an impact on long-term projections. Also taken into account was “lower sterling oil prices”, which were partly offset by higher gas prices, and the sustainability of tax revenues.

The leader of the No campaign Alistair Darling said the figures confirmed that the oil was running out and added that remaining in the UK was the best way to make use of the remaining resource. Alex Salmond, however, dismissed the OBR estimates as “stuff and nonsense”, arguing that they were too pessimistic.

The publication of the report was accompanied by a letter sent to the Holyrood finance committee by the OBR’s chairman Robert Chote.

Mr Chote said that the OBR’s figures suggested that North Sea oil and gas receipts would “remain a valuable resource for many years to come”.

But he added: “They are highly volatile from year to year, which makes near-term forecasting very difficult. And while it is clear the long-term trend in receipts is downward, the pace of that decline – and the amount that can be collected as it happens – is highly uncertain and very sensitive to production and prices. Whichever government receives these receipts needs to plan on that basis.”

The OBR, which was created by the Chancellor George Osborne to provide independent economic analysis, also predicted UK government debt would peak in 2015/16, a year earlier than expected, at 78.7 per cent of GDP – 6.9 percentage points lower than previously forecast.

Its latest figures also showed total debt at £1.273bn, or 76.1 per cent of GDP – the equivalent of £48,200 per household.

The OBR warned that governments will have to raise taxes or implement further spending cuts in the coming decades, mainly because, as life expectancy grows, the cost of health, social care and the state pension will increase.

Mr Darling claimed that the revised oil figures added credibility to the No argument.

The Better Together leader said: “Today’s figures confirm what we already know – the oil is running out and the tax we will get from it is falling. Being part of the UK means we can make the most of what is left in the North Sea without putting the funding for our schools and hospitals at risk. It’s the best of both worlds for Scotland.

“Oil and gas has been great for Scotland. The industry employs around 200,000 people here and generates billions in tax to pay for our public services. That’s a good thing, but the tax we get is volatile and declining.

“Alex Salmond has consistently over estimated how much tax we would get from the North Sea, and today’s figures confirm that his future guesses are as unreliable and optimistic as ever.”

Mr Salmond said: “It’s stuff and nonsense. The OBR are suggesting 10bn barrels of oil and gas remaining.

“[Umbrella body] Oil and Gas UK say up to 24bn barrels. Sir Ian Wood, the huge expert on how to maximise (production), says up to 24bn barrels. The professor of geology at Aberdeen University says it’s more like over 30bn barrels.

“Now, all of these people know infinitely more about the extent of the reserves remaining in the North Sea than the Office of Budget Responsibility in London does.”