Scottish independence: Oil politics centre stage

David Cameron and Alex Salmond will hold cabinet meetings just seven miles apart. Picture: Ian Georgeson

The Prime Minister, who will chair a meeting of the Cabinet in Aberdeen today, has accepted the main recommendations in an expert review of the industry commissioned by Westminster that could result in an extra four billion barrels of oil being recovered from the North Sea.

Mr Cameron said the “broad shoulders” of the UK government could support investment in the industry, but Downing Street warned volatility in the oil market could have a dramatic effect on Scottish finances in the event of independence, with the smaller economy less able to absorb the impact of a drop in revenue.

Today’s meeting will be only the second time in more than 90 years that the UK Cabinet has met in Scotland.

First Minister Alex Salmond will hold a separate meeting of his Cabinet in nearby Portlethen and has promised to base part of a new Scottish energy ministry in Aberdeen if there is a Yes vote on 18 September.

The two meetings – just seven miles apart – herald a new chapter in the referendum campaign, with the future of the oil and gas industry taking centre stage.

They have been timed to coincide with publication of retired oil tycoon Sir Ian Wood’s review of the industry, which recommends measures that could result in three to four billion more barrels being recovered, bringing in more than £200bn to the UK economy.

The measures which the UK government will accept and fast-track, include the creation of a new independent regulator to supervise licensing and to ensure maximum collaboration between firms to explore and develop oil and gas fields.

There will be a joint commitment by government and the industry to ensure licences are awarded on the basis of recovering the maximum amount of petroleum from UK waters.

The report also recommends more sharing of infrastructure and geophysical information and a cut in red tape.

Mr Cameron said: “For many years, the UK has supported the North Sea oil and gas industry and we have worked together to make this an economic success the whole country can be proud of. I promise we will continue to use the UK’s broad shoulders to invest in this vital industry so we can attract businesses, create jobs, develop new skills in our young people and ensure we can compete in the global race.”

Energy Secretary Ed Davey, who asked Sir Ian to look at the industry, said: “Britain will still need large amounts of oil and gas, even as we cut our carbon emissions over the coming decades. So, with recent large falls in North Sea production, I commissioned this report to see how we can reduce the oil and gas we would otherwise import by boosting UK offshore production.”

The coalition claims the UK’s large consumer and tax base will allow it to support the industry and help exploit increasingly hard-to-reach reserves.

The Scottish Government has put forward plans for two separate oil funds if there is a Yes vote in the referendum – a short-term fund to help deal with fluctuations in oil and gas revenues, and a long-term savings fund.

But Downing Street was keen to highlight “difficulties” Scotland would face in coping with volatility in the oil price, due to its greater dependence on the industry after independence.

Tax revenues from oil and gas in 2012-13 were £4.7bn lower than the year before – a fall of more than 40 per cent and a sum that equates to more than a third of Scotland’s health budget or two-thirds of its spending on education.

Downing Street said the UK was “well placed” to absorb price shocks that would “dramatically affect a small country’s budget”.

Ahead of today’s Scottish Cabinet, Mr Salmond said North Sea oil capital would fund the regulator recommended in the Wood review.

He went on: “Independence presents an unrivalled opportunity to boost our energy wealth, support employment and grow our economy.

“A new energy department for Scotland, co-headquartered between Aberdeen and Glasgow, will capitalise on existing knowledge and expertise, building an effective, efficient and world-leading energy industry.

“Aberdeen is Europe’s oil and gas capital and its importance in the global market is undisputed, making it the natural home for a new energy department. It is also a vital and growing centre for the development of marine energy.

“At the same time, Glasgow is fast becoming the most influential low-carbon engineering centre in the UK. Its proximity to electricity and gas supply industries and the renewables industry is crucial to ensuring we have the right expertise in the right place, especially in relation to the development of offshore wind in Scotland.”

He added: “I wholeheartedly agree with Sir Ian Wood’s recommendation that a new regulator for the North Sea should be created. That regulator should be in Aberdeen.”

Patrick Harvie, co-convener of the Scottish Green Party and a supporter of independence, attacked both the Scottish and UK governments for “falling over each other to court the fossil fuel industry”. He said: “It’s a pretty sickening sight. Oil and gas can only offer a real economic value if we use them sparingly, within ecological limits. Many in the SNP still recall the slogan ‘It’s Scotland’s oil’. Well, maybe it was, but we’ve burned too much of it already. The future must be clean, green and renewable, or it’ll be no future at all.”

Following in the footsteps of Lloyd George and Brown as UK Cabinet heads north

THE UK Cabinet is meeting in Scotland for only the second time in more than 90 years, writes David Maddox.

As prime minister, Gordon Brown took his team to Glasgow in 2009, and the time before that was in 1921, when Liberal premier David Lloyd George and his senior ministers met in Inverness to get government business out of the way before a spot of grouse shooting.

While current No 10 occupant David Cameron is not averse to a spot of shooting, his trip north today has an altogether different aim – keeping Scotland in the United Kingdom. And that might explain why, as the Westminster circus rolls into Aberdeen, the Scottish Cabinet is meeting seven miles away, in the modest surroundings of Portlethen Parish Church. The reason for the two cabinet meetings in such close proximity lies in a shared interest of the future of the oil and gas industry.

Both gatherings were arranged to coincide with the publication of Sir Ian Wood’s report on the industry and both sides want to claim the sector for their own. Unsurprisingly, Deputy Prime Minister Nick Clegg and fellow Liberal Democrat Energy Secretary Ed Davey will be hot-footing it to Peterhead while they are in the area to talk about carbon capture, to prove that green energy remains very much on the agenda.

Fortunately, police in the area are familiar with guarding visiting VIPs – they are used to protecting the Royal Family at Balmoral – and it is expected their presence will be higher in Aberdeen than in Portlethen.

First Minister Alex Salmond’s meeting will be followed by a public discussion, with Scottish ministers talking about the Yes campaign and other issues in move that could be designed to show they are not worried about facing the people – unlike, perhaps, the UK Cabinet.

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