Coming from one of the founding fathers of the North Sea oil industry, Sir Ian Wood’s report on the importance of oil to the UK and Scottish economies has focused minds wonderfully.
It has rightly injected into the debate over Scottish independence a critical economic perspective revealing just how vital offshore oil and gas reserves still are, both in terms of keeping the lights on (quite literally) across Britain, as well as to the UK and Scottish economies more generally.
Lost in the politics of the coming vote, the media has struggled to boil down for Joe Public and Joe McPublic precisely what’s at stake and how it might influence the Scottish independence vote.
Which is a shame. Because, as energy insiders and analysts know only too well, the investment issue is critical, as is the culture of incentivisation that underpins it.
And that’s where it is possible to look beyond the political rhetoric to glean just how differently a UK and Scottish regulator are likely to view things.
This week a new report from Oil and Gas UK revealed how North Sea oil exploration activity has, over the past three years, fallen to an all-time low. Production fell by eight percent in 2013 alone. Essentially, North Sea oil has become all about managing a dwindling, but still vital, resource.
The report goes on to state that although production is due to rise slightly in 2014, actual operations will still be “too low to recover a fraction of the potential reserves”. The report concludes that North Sea oil is “facing its biggest challenge in 50 years”.
According to Sir Ian Wood, the recovery of just three to four billion barrels of North Sea oil (from 20 billion estimated still untapped) and gas could provide a £200 billion boost to the economy.
Sir Ian Wood’s call for an industry regulator is not only timely but critical. However, leaving aside the longer-term ‘dwindling’ nature of the oil per se, the danger for the SNP, and the Scottish independence campaign generally, is that Scotland puts its economic shirt on future oil revenues, effectively making Scotland a largely oil-based economy.
While the “It’s our oil!” sabre-rattling approach might galvanise campaigners for an independent Scotland, this is no argument for potential investors looking for long-term assurances.
What really matters to them is solely the potential for lower taxes to attract more exploration and sustainable development. And that is where the wheel’s start to come off for the “It’s Scotland’s oil” bandwagon. Because all the evidence suggests that a future independent Scottish Government would find itself under immense pressure to boost oil revenue income to pay for the country’s expensive socialist ambitions.
Scotland is a socialist country. Indeed, the UK’s Celtic tradition has been singularly responsible for overruling England’s inherent Anglo-Saxon conservatism and putting socialist UK governments in place.
Just why Celtic society which so cherishes the belief that it is truly ‘independently-minded’ (note the outright opposition to Rome’s version of Christianity when Augustine landed on these shores in the sixth century) has become so radically Big Government and Entitlement Culture orientated is a story for another day.
The fact is, an independent Scotland is not going to change its political and socialist spots. Welfare and entitlement continue to be front and centre, a direction the SNP is set on pursuing if Scotland goes it alone.
And that will mean intense pressure to increase the tax burden, above all via oil revenues, 90 percent of which would then lie within a Scottish Government’s control.
Being a more mixed economy, a UK Government would have the capacity to do what it is doing with shale gas, create a much more attractive lower tax regime better able to generate a culture of investment incentivisation that would benefit the UK and Scottish peoples for decades to come.
None of this is rocket science. It is just hard-nosed analysis of the energy and investment facts of life But don’t expect energy company CEOs and the like to go public and say as much. They don’t want to become embroiled in the Scottish independence debate. They want to see how the political landscape lies after the September vote.
Nick Butler, a vastly experienced energy and investment insider, put it this way in the FT recently, “A cold wind of economic reality is blowing in from the North Sea. The days in which offshore oil and gas production could provide easy revenue to support public spending are over.
“Development of the area’s remaining reserves will only thrive if the tax regime is completely rewritten, with the tax take drastically reduced. Politicians in London and Edinburgh should accept this reality rather than pretending that we are still living in the glory days of the 1980s.”
That’s a realistic view that underscores the ‘revenues can fuel our socialistic vision’ philosophy that so emphatically drives the SNP’s policies and Scottish independence ambitions. Just to add fuel to the fire this week, Standard Life have warned that it would be forced to relocate its offices if Scotland went independent in a bid to “ensure continuity and to protect the interests of our stakeholders”. For ‘stakeholders’, read ‘investors’.
Bottom line then? If I had a vast sum set aside to invest potentially in future North Sea oil development I would not chance it until after the vote in September.
Scottish independence has been made a matter for the Scots. But should they decide to pursue their socialist dream, they would have to forego not only the UK currency and a seat at the EU, but also my ‘potential investment’ and, no doubt, that of countless others, given the lack of a low tax culture of incentivisation independence would undoubtedly mean.
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