Scotland's Economy

The Truth about Scotland’s Oil

Oil_platform_in_the_North_SeaI 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
  • Carpets
  • Shampoo
  • Lipstick
  • Glue
  • Plastic bags
  • Artificial limbs
  • Drinks bottles
  • Toothbrushes
  • Bubble wrap
  • Detergent
  • 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.

Conclusion

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.

Further Reading:

Oil: boom times ahead? – Herald Scotland

Britain has squandered the golden opportunity that North Sea oil promised  – The Guardian

 

Support Business for Scotland, as we convince the business community of the benefits of voting Yes in 2014 – Read More

About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

8 Comments

  • Gordon,

    Held apprentice in the Caledon yard during the war, my father became a Chief Engineer on Shell’s supertankers. And, whether he was away at work or home on leave, there was always a drum of ‘Teepol’ about the house that was used in varied dilutions for hair, dog, dish, bedding, clothes, carpet, floor, paving, bicycle, car and upholstery washing. Oh, and washing my mouth out on once was enough swearing.

    Re Vitol and Taylor’s business in oil as a commodity: there are no ‘futures’ in his talking-up the price of oil to profit more from.

    Re long term, it’s not energy providers who do not think and plan for the long term, but politicians -especially those of post-war UK governments and their official opposition in revolving door turn.

    It has been their failure to invest and foster investment for the long term that has inhibited our own natural and manufactured development. Not being mean, but canny, innovative and thrifty seems to have been and still be the Westminster ruling elite’s “do as we say, not as we do” outlook from their perch of profligacy and profit from power, patronage and priviledge.

    It is that failure too which has seen capital and people emigrate to competively cheaper and better paid work respectively, whilst the latter have been replaced by immigration to low waged work, in turn maintaining rather than reducing demand on welfare services that a real living wage from long term investment would do.

    Productive investment for our society, in communities of families, friends and fellow folk, should seek to prevent the more costly cure of there being too little.

    Somehow, our constitution has to build-in a duty of care to think and enact long term.

    It worked in post-war Germany, nicht wahr? Why not here auch?

  • Oil, wind, tide and plenty of fresh water. Scotland should leave the UK, which is becoming more & more right wing. (an ex-pat living down south).

    Great article

  • Robert – first of all to put it into context Ian Taylor is the largest donor to the No campaign despite being an english business person and not being able to vote in the referendum.

    So he has a vested interest in presenting the worst case scenario – that said he is also involved with oil trading company so there is likely to be at least some truth in what he is saying even if it is portrayed in a slightly misleading way.

    In the short term the Norwegian government are forecasting an oil price of just above $100.00 (NOK 650.00 this year and NOK 635.00 next year). In the long term the government has forecasted a somewhat lower price of around $90.00 (NOK 525.00).
    The long term forecast is recently updated to $100.00.

    Ian appears to be referencing the Norwegian Governments last longterm forecast (issued in 2009) which estimated a price of NOK 435.00 in the long term, somewhere between $75 and $80 – the actual price rose to near $110 at its peak.

    For the record the OECD are forecasting an 2017 oil price of $150 per barrel, the UK and USA Governments around $130 per barrel. Much is made of the OBR forecast of $90 dollars but the UK government energy Department has ignored that and is looking at $130.00 per barrel.

    With the forecast increase in productivity the low estimates would mean Scotland could have a similar net revenue situation to today in its first few years of independence but the UK / USA Government forecasts would mean an oil boom for us that would go a long way to clearing our share of the UK debt and enable us to start our own oil fund.

    OBTW – my figures come from my contact in the Norwegian Ministry of Petroleum and Energy, this morning not from 2009’s outdated forecast.

  • Dode I will be covering off the new investment and its impact on production volumes (now expected to increase substantially in the next few years) and its effect on price in future blogs. Although you have a clear grasp of some of the more details many of our readers are just finding out about the basic facts and misleading assumptions as they begin to engage with the debate for the first time.

    Adding the new potential finds to the tidal power potential, and it is clear that Scotland has a strong future as an energy rich independent nation.

  • Very good, but you know that amount of oil left in the north sea reserves is not the issue. Rather, it is basing an economy on a volatile resource dominated by economies who have a greater percentage of the global oil at their disposal.

    And the nationalist response is usually ‘we’ll do a norway and have a sovereign oil fund’. Again it’s all very well saying that, but can you guarantee that a future Scottish government would follow such a policy (or indeed whether such a policy would in fact be in the short/long term interests of Scotland)?

    • Why wouldn’t it be in our long term interests to invest a proportion of oil revenues in order to make more money from them?

      Of course no-one can guarantee what the policies of an independent Scottish government would be any more than they can guarantee what the policies of UK governments in the future will be. That depends on how people vote and whether politicians keep their promises or not, whether we’re independent or not. However we can guarantee that as long as Scotland is part of the UK, UK elections are mostly not won or lost in Scotland, so Scottish voters will have far less say over what government is elected and far less influence over it’s policies than they would have in an independent Scotland – apart from the Scottish parliament voting system being much fairer and more representative than the purely first-past-the-post Westminster voting system which bins the votes of the majority unrepresented in many constituencies, only counting the largest minority or majority in each constituency.

  • Good article but a wee bit anachronistic ?
    More than 310 drilling licences have now been granted, within 165 sites in Scottish Atlantic coastal waters.Current estimates are between 120 – 165 years of yield within these locations +more exploration to follow !

  • What do you think about Ian Taylor’s claim in the Sunday Herald that Norway are basing their projections on $77 per barrel?

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