Forecasts of future revenues from North Sea oil and gas by an economics watchdog have been described as “incredibly pessimistic” and could be six times lower than the actual levels, according to a report.
The Scottish and UK governments have repeatedly clashed over the future of the industry, particularly around forecasts from the UK Office for Budget Responsibility on the amount of cash it expects to be raised from the North Sea.
The Scottish government argues the OBR forecasts are based on a “very low estimate of future total production”, while its own figures have been criticised by opponents who claim they are overly optimistic.
In July, the OBR chairman, Robert Chote, revealed the body was now forecasting that revenues of £61.6bn would be raised between 2013-14 and 2040-41, down from £82.2bn.
A report by the thinktank N-56 said the figure could be as high as £365bn if a series of recommendations were implemented.
Among its recommendations, some of which were highlighted by the Wood Review earlier this year, are the establishment of a more competitive tax regime for the North Sea; moving all policy and decision makers responsible for taxation and regulation of the industry to Aberdeen regardless of the referendum result; and the creation of a hydrocarbon investment bank to boost investment and a host of technological schemes between industry to boost oil recovery.
An oil fund should also be established to ensure fiscal stability, N-56 said.
Graeme Blackett, of N-56, said: “Since 1970 over £1tn in oil and gas revenues have been produced by the North Sea and at least as much value remains to be produced as already has been, presenting a tremendous opportunity for the sector and for Scotland‘s public finances.
“Scotland is a net contributor to the UK public finances, in part due to our geographic share of oil and gas revenues, and this ensures that our finances are typically healthier than the UK public finances as whole.
“The OBR puts forward incredibly pessimistic forecasts on both barrel price and reserves, largely discredited by industry experts.
“What is clear is these natural resources can be maximised through implementing the recommendations put forward both by ourselves and the Wood Review, delivering considerable surpluses that we would recommend are used to invest in an oil fund to benefit future generations.”
The report comes as it was announced that potential oil and gas discoveries off the west coast of Scotland are to be examined in a partnership between the Scottish government, industry and academics. Areas including the Solway Firth, the Firth of Clyde, the North Channel (between Scotland and Ireland) and the Sea of the Hebrides will be the focus of the study.
Only about 20 exploration wells have been drilled off the west coast of the mainland, compared with the thousands drilled in the north and north-east of the country.
The N-56 report was welcomed by the first minister, Alex Salmond.
Salmond said: “This substantial new report from a leading business organisation blows another huge hole in the credibility of the OBR’s oil forecasts, especially as it comes just days after esteemed Scottish economist, Professor Sir Donald MacKay, said the OBR’s calculations were ‘precisely wrong’ and ‘hopelessly at sea’.
“The report also endorses the Scottish government’s plans to set up an energy fund – something Westminster have consistently failed to do to the great detriment of current and future generations.
“Instead of continuing to talk down Scotland’s oil and gas sector, the No campaign should acknowledge that the sector has a bright future ahead of it.
“With a yes vote in September, we will be able to ensure that the sector benefits from a more stable taxation regime instead of being subject to surprise Treasury tax grabs – maximising the jobs that the industry creates and revenue for the long-term, and ensuring that Scotland’s resources are used to the full benefit of the people of Scotland.”
A Treasury spokesman said: “As part of the UK, every man, woman and child in Scotland is £1,400 better off. The Scottish government’s claim that Scotland’s public finances will be boosted by separation are based on inflated oil and gas forecasts. Every independent expert agrees that North Sea oil and gas revenues are volatile and will ultimately decline. The Scottish government’s own stats show that over the past two years, North Sea tax revenues were around £5bn less than the Scottish government’s lowest estimate.
“The North Sea is a maturing basin and it needs valuable incentives from the Exchequer to sustain investment, which the UK, with its broad and diverse tax base, is able to provide.
“An independent Scotland would have to invest almost £3,800 per head – over 10 times more than when the costs are spread across the whole UK – to match the estimated £20bn the UK government has guaranteed to provide on decommissioning relief in the North Sea. This report takes no account of these costs.
“It is not credible for the Scottish government to say they would sustain current tax incentives for the oil industry and set up an oil fund, while cutting corporation tax below the UK level and increasing welfare benefits.
“How would they fund all these tax cuts, ensure increase public spending and put money aside for an oil fund?”
A Better Together spokesman said: “It’s not surprising that a report by an organisation founded by an adviser to Yes Scotland has reached this conclusion.
“All independent experts make clear that the tax we can expect to get from oil is declining and volatile. The broad shoulders of the UK mean we can make the most of the oil that is left without putting the money for our schools and hospitals at the mercy of volatile oil prices.
“By saying No Thanks to separation we can have the best of both worlds for Scotland – a strong Scottish parliament, with more powers guaranteed, backed up by the strength security and stability of the United Kingdom, which will protect funding for our public services.”
JuanP on Tue, 19th Aug 2014 9:23 am
If the Scots vote for their independence, so be it. Relocalization is part of the collapse process, so this is a reasonable move on their part. They will always have to share the island, though, and staying friendly is best. I think that Scotland would benefit economically from independence, but more because of their low population and wind and tidal energy, than the oil and gas. England is badly overpopulated.
Kenz300 on Tue, 19th Aug 2014 11:15 am
It is time to speed up the transition to safer, cleaner and cheaper alternative energy sources.
Wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste are the future.
Renewables to Receive Lion’s Share of $7.7 Trillion in Global Power Funding
http://www.renewableenergyworld.com/rea/news/article/2014/07/renewables-to-receive-lions-share-of-7-7-trillion-in-global-power-funding
rockman on Tue, 19th Aug 2014 3:27 pm
Juan – If you allow some modification: If the Texans vote for their independence, so be it. Relocalization is part of the collapse process, so this is a reasonable move on their part. They will always have to share the continent, though, and staying friendly is best. I think that Texas would benefit economically from independence because of their low population, strong economic growth and wind as well as their oil and gas. The east and west coasts are badly overpopulated.
JuanP on Tue, 19th Aug 2014 3:38 pm
Rock, LOL. It’s the second time you do this! OK, I’ll let you have Texas if TPTB agree.
rockman on Wed, 20th Aug 2014 12:47 pm
Juan – We do have the oft repeated urban legend here: when the INDEPENDENT AND SOVEREIGN country of Texas negotiated a deal to join the US one of the rights was to withdraw from the Union if we decided to. BTW did you know there was a federal law requiring that the US flag be flown higher than any state flag on display with it? Just one exception: Texas is not required to fly our state flag lower than the US flag…part of that negotiated agreement. We also have strong restrictions on the feds owning land in Texas which is why I’ve never had to deal with the BLM in Texas.
But setting aside all that it’s easy to see how many of these arbitrarily defined countries, like Iraq, are going to be facing increasing pressure to redefine their borders. The catalysts might be oil/other commodities or religion. But the dynamics are definitely in play around the world now. What will be the right thing to do for many of these regions? As usual it will likely boil down to “might makes right”.
JuanP on Wed, 20th Aug 2014 1:32 pm
Rock, thanks for that state and flag info. This world is weirder than one could imagine. Now I’m going to be checking flag heights everywhere I go, and laughing to myself whether they are placed right or wrong.
I like Texas. My wife and I found several parts of Texas reminded us of back home when we went there, particularly the farms and some natural ecosystems, both in the dry and wet parts of the state.
The cities are very different. We rollerbladed around downtown Houston a Sunday at sunrise to stretch and get some air after driving at night and it was a surreal experience, because we where in the midst of all these skyscrapers and there was not one person around. There are some beautiful parks there. I guess not many people go downtown early on Sundays.
abrupt1 on Wed, 20th Aug 2014 6:04 pm
JuanP, SPOT -ON!
rockman on Wed, 20th Aug 2014 10:38 pm
Juan – Years ago d/t Houston tended to be populated mostly by bad types after dark. Now with suburban flight the character has changed significantly.
In a PO world Texas will have a variety of advantages over many states. The biggest negative is summertime heat and ac bills. But with our growing wind power (which tends to be concentrated in the hottest areas) it’s becoming more manageable. The population is constantly growing thanks to so many companies relocating here but we still have a lot of room.
But Colorado is still damn nice. LOL
Davy on Thu, 21st Aug 2014 6:59 am
Rock, you forgot to mention H2O. I think that will be Texas Achilles heal. Yes Colorado is wonderful but I prefer Jackson Hole, Wyoming. Wyoming has the smallest population of any state. I seem to dislike people at least crowded regions. This is why Canada is appealing, Yet, I am too old to move and being a rural backwater the Ozarks are still rural in flavor.