Scottish Independence: All about the Oil?

In less than a year, on Sept. 18, 2014, the people of Scotland will go to the polls to decide if they want their country to remain a part of the United Kingdom or not.

A key plank in the argument of the Scottish Nationalists, who are campaigning for an independent Scotland, is that there is more value to come from North Sea oil and gas during the next 40 years than has been generated over the past four decades. With hydrocarbon reserves estimated by the Scottish National Party (SNP) as being worth up to $2.4 trillion (GBP 1.5 trillion), the SNP believes it can use oil and gas wealth to build up a sovereign wealth fund for future generations of Scots in the same way that Norway has built up a fund from its oil and gas wealth.

When it comes to Scotsmen and women who work in the oil and gas sector themselves, they are “almost split down the middle” when it comes to their views about whether Scottish independence would have a positive or negative effect upon them. According to a survey released August 7 by NES Global Talent, 56 percent of the oil and gas workers surveyed believe their wages would stay the same if Scotland became independent, while 54 percent believe more jobs would be created.

Although the results appeared mixed, the SNP actually welcomed the result of the survey as being a positive signal for independence.

“This poll shows most offshore workers believe independence will see an increase in North Sea jobs. These are extremely welcome findings and show that the negativity towards the oil and gas sector from anti-independence politicians is doing little to damage confidence within this booming industry,” Kevin Stewart, Member of the Scottish Parliament for Aberdeen Central and SNP member, said in a statement following the release of the survey’s results.

“People within the industry who know it best anticipate increased jobs in an independent Scotland – and that is a boost to the Yes campaign.”

However, in mid-September, legal academics at Dundee University published a paper in which they argued that, should Scottish independence occur, the newly-separated countries could have a lengthy legal dispute over who controls the territory off the east coast of Britain. Noting that an independent Scotland would have to agree its boundaries with the rest of the UK, the paper – “Legal Implications for the UK Offshore Oil Industry of an Independent Scotland” – stated that International Court of Justice boundary cases have taken at least three, and sometimes more than 10, years to conclude.

Meanwhile, a report from the National Institute of Economic and Social Research think tank in mid-September suggested that Scotland might have to agree to sell a large component of any oil it produces to the UK in order to write down an estimated $247.5 billion (GBP 153 billion) debt burden it would inherit on leaving the Union. Otherwise an independent Scotland would have to take urgent austerity measures to get its gross domestic product-to-debt ratio down to levels required by the European Union – assuming that Scotland remains a member of the European Union.

Another problem that opponents to Scottish independence point out is the economies of scale that a greater UK can provide to the Scottish oil and gas industry. For example, UK Chancellor of the Exchequer George Osborne used a speech at Aberdeen’s Offshore Europe conference in early September to point out that the Scottish industry currently benefits from a UK government commitment to decommissioning relief for certain oil and gas projects.

“When you hear big numbers bandied around that aren’t impartial and it sounds too good to be true, it probably is,” Osborne said, pouring scorn on the idea that an independent Scotland could cut taxes, keep household energy bills down and establish an oil fund.

What the anti-independence camp has not mentioned, however, is that the Scottish oil and gas industry is about more than just exploiting domestic hydrocarbons.

Scotland, and the Aberdeen area in particular, has become a hub of oil and gas expertise, with plenty of supply chain firms springing up that service the oil and gas companies around the world. In May, Rigzone reported that figures from Scottish Development International showed that exports by Scottish oil and gas supply chain firms jumped 8.4 percent between 2011 and 2012 to hit $12.7 billion – accounting for 47.6 percent of the supply chain sector’s total sales.

North America represents the largest export market ($4 billion in 2012) for oil and gas supply chain companies, but Scottish supply chain companies are also seeing major growth from emerging regions such as Africa.

The SNP’s arguments on the benefits of independence, as well as the arguments against Scotland splitting from the Union, will likely be closely scrutinized during the run up to referendum day next September. But what is certain is that the Scottish oil industry will play a major part in those arguments.

RIGZONE