I was interested in the regular claims that Scotland’s North Sea oil and gas reserves were running out. This has been a claim that I have heard repeated throughout my lifetime, and it was one often used by the ‘No’ campaign in the 1979 Home Rule referendum.
I seem to remember a claim in the 80s that there would be about 10 years production left and then in the 90s maybe as much as 20 years, now the same people are admitting to 30-40 years. As an economist I joke that I can instantly see the pattern, every ten years the estimate of the time the oil fields will be productive doubles.
Joking aside, would you be as surprised that following a great deal of research I did indeed conclude that in 20 years time it is probable that most people will be claiming there is 60-80 years life in the North Sea oil fields.
How long will North seal oil last?
From the Telegraph in June 2008 we find a credible source that says: ‘North Sea oil will last for 100 years‘. Dr Richard Pike, a former oil industry consultant and now the chief executive of the Royal Society of Chemistry, said:
“Rather than only getting 20 to 30 billion barrels [from the North Sea] we are probably looking at more than twice that amount. The North Sea will continue to provide oil for another 100 years, twice as long as previous estimates, according to industry analysts”.
100 years is on the upside but what does the official industry body say? At a recent debate on the future of the North Sea a director of London based industry body, Oil & Gas UK, told me that there is at least 40 years of oil left at reasonably high production rates and that various sources agree that the oil left in the sea is worth about £1.5 trillion in terms of resources remaining to be extracted.
Most of the oil is still in the ground!
What he also told me was that when an oil field is considered redundant, approximately 60% of the oil in the field is still underground, it’s just that current oil prices don’t make it cost effective to remove it with current technology. This was a revalation to me, every few years extraction technology improves and the cost of extraction goes down and so the life of the oil fields is extended. When the price of oil also goes up it becomes more profitable to go and get the hard to reach deposits.
So Oil and Gas UK’s 40 year prediction is based on current oil to extraction cost ratios and the current state of oil extraction technology. In other words, there is more oil left than has currently been extracted and I have discovered that Scottish companies are leading the world in oil extraction technology and exporting that knowledge worldwide.
Commodity pricing and scarcity
Looking at it from an economists point of view and not an engineering one I wonder if the 40 year estimate might be underestimated. Commodities that become scarce, tend to go up in price and the £1.5 trillion figure for the remaining reserves is based on projected inflation, assuming production sustainability in troubled areas such as the middle east and North Africa. It also does not take into account the scarcity effect on pricing that can be reasonably expected.
Looking also at the price of oil, I note that the gloomy forecasts used by the unionists tend to originate from the Westminster based Office of Budget Responsibility suggest that oil prices will be $92.00 a barrel in 2017. However the Organisation for Economic Co-operation and Development (OECD) is suggesting $150.00 per barrel in 2017. On the Westminster forecast Scotland’s finances would be good, but not great, however on the more reliable OECD forecast Scotland looks set for a new oil boom!
The final twist
My research uncovered a few surprises but one more was still to come. Most people think of oil as fuel and the substance that makes diesel and petrol for our cars, but the value of oil as a component in other manufacturing processes is of vital importance. When the global oil supply runs out we wont be able to make many products that use oil as a component, there are some substitutes but often more expensive or less efficient. For example, did you know that oil is a vital component in the manufacture of:
- Credit cards
- Motorcycle helmets
- Toilet seats
- Plastic bags
- Artificial limbs
- Drinks bottles
- Bubble wrap
- Medical drugs
- Plus about a hundred other things we use in our daily lives.
It can be argued that oil will have a greater value both to society and price wise as a component than as a fuel to burn in the future. So even if alternative motoring fuels take over there is a great deal of demand for oil that will keep the price per barrel high for many years.
Is the oil running out, then? Well obviously it will some time in the future but it looks like it will stick around long enough for the revenues to give us a great start as an independent country. As long as we invest sensibly in taking advantage of our world leading renewables potential simultaneously to the long term move from petrol fuel reliance then the future is bright for Scotland as an independent country.
Oil: boom times ahead? – Herald Scotland