Economics of Independence Scotland's Economy Scotland's Energy Resources Westminster Mismanagement

UK government misplaces six billion barrels of oil!

Professor Alex Kemp, the leading oil economist.
Professor Alex Kemp, the leading oil economist.

Professor Alex Kemp, the leading oil economist.

The UK Government’s oil and gas forecasts for North Sea oil are six billion barrels too low according to Professor Alex Kemp, oil economist at Aberdeen University.

Professor Kemp, who is seen internationally as one of the world’s leading experts, says that “the oil production figures produced by The Office of Budget Responsibility (OBR) were six billion barrels fewer than he would expect”.

Professor Kemp, whom I interviewed last week, is keen to stress that he is politically neutral but wants to make sure people have access to the facts about North Sea production.

The weekend papers were full of the predictions from The Office of Budget Responsibility (OBR) which painted a bleak future for tax revenues from the North Sea for an independent Scotland.  The OBR is often touted in the mainstream press as an independent body which in governance terms technically it is, but in practice it is not neutral!  The OBR was set up by Tory Chancellor George Osborne and is staffed by neo-classical and laissez-faire economics types who follow the London finance led economic orthodoxy.  Indeed many of the OBR staffers have a history in London financial services.

Given The OBR’s heritage and agenda, their proclamations lean heavily towards the view that there is no alternative to the failed City of London centric approach, which includes the false premise that Scotland does not have what it takes to prosper more successfully outwith the Westminster straight-jacket.

Now you might say ‘well yes Gordon, you would say that’, so here is a quote about The OBR from someone who now welcomes such discredited predictions as last weeks.  Speaking to the Financial Times in 2010 Alistair Darling, the leader of the No Campaign, claimed The OBR had been politicised saying:

“Right from the start the Tories used The OBR not just as part of the government but as part of the Conservative Party. They have succeeded in strangling what could have been a good idea at its birth.”

The OBR have a track record of getting North Sea predictions spectacularly wrong, for example when they said George Osborne’s North Sea tax grab wouldn’t affect the North Sea revenues: “Tax rise ‘won’t hurt North Sea’ says OBR”. 

In 2011, Chancellor George Osborne increased supplementary corporation tax (SCT) from 20% to 32%, increasing the effective tax rate for exploration and production companies to between 62% and 81%. The intention was to raise £10 billion, however, Andrew Sentence, PwC economist and ex-member of the Bank of England’s Monetary Policy Committee, calculated that the resultant double-digit collapse in oil and gas output knocked 0.5% off annual GDP growth.

A tax grab that lowered the next year’s tax take by more than the grab led to older fields being shut down and job losses – brilliant!  

There is now deep distrust in the North Sea oil industry towards the Westminster system. The oil industry needs consistency if investment and by extension extraction are to be maximised in the interests of economic growth.

Courtesy of a Hollyrood Magazine article we also have an admission from another former Labour Chancellor, Lord Healey, that the Labour party deliberately hid the true value of North Sea oil from Scots in the seventies to stop people voting for the SNP.

So no change then.

As a child I remember being told, around about the time of the home rule referendum, that the oil would run out in ten years. Ten years later they said maybe twenty more and that was it. Now the oil industry itself is saying there is between forty and sixty years left.  A pattern seems to be emerging – every ten years the amount of oil left goes up by ten years!

We are being misled, is there anyone left who doesn’t actually understand that yet?  Take a look at my article from a few months ago which revealed a very specific case of No Campaign misinformation on oil prices that I was able to debunk after talking with the Norwegian government.

There are more reliable and soundly sourced predictions on both North Sea oil production and revenues in the Scottish Government report today.

The Scottish Government is stressing that Scotland will not rely on oil revenues to fund an independent Scotland, but that the revenues generated from the industry would be a “bonus”.  Scottish GDP without oil matches UK GDP and so the Scottish onshore economy is strong enough to stand on its own two feet without North Sea revenues which can therefore be looked upon as a bonus – a bit like winning the lottery every year!  Of course, the true value of the yearly bonus is in not squandering the money but investing it in the future of Scotland, including an oil fund for future generations so the windfall lasts forever (much like the Norwegians have done) and which also addresses the volatility risk.

Three key points in the paper are:

  1. The rate of taxation on North Sea oil and gas  will be maintained at the current level of 62% in an independent Scotland.
  2. More than half of the value from the North Sea remains to be extracted.  The industry forecast is 24 billion barrels, (14 billion higher than UK government is predicting) which amounts to one and a half trillion pounds: £300,000 for every man, woman and child in Scotland.
  3. If Scotland had had a sovereign oil fund over the past 40 years – as an independent Scotland would create – it would now be worth £17,000 a head for every Scot.

Conclusion

The Scottish Government’s predictions are in line with the industry’s on oil production and the Norwegian Government’s for oil prices (but way below the prices predicted by the equally well respected OECD).  Even conservative academic forecasters say the UK government is undervaluing North Sea oil by thousands of millions of barrels, so it is a reasonable conclusion that The OBR figure is either incompetent or deliberately misleading.

Scotland’s economic success does not rely on oil, its a bonus, and if we take control of it and invest properly we can not only improve Scotland’s economic prospects today but also ensure a balanced sustainable economy in the future.  The alternative is that London keeps taking the windfall and squandering it on white elephant projects such as HS2 and Trident.

 

Join BfS

Are you in business? You can join Business for Scotland here for free.

Further Reading

The Truth about Scotland’s Oil  

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.

11 Comments

  • It is of no surprise that figures are being manipulated deliberately to fool members of the public. Departments have been set up for that very purpose, one of those being the OBR. It should be of concern to many that this type of misleading behaviour goes unchecked. Just one other reason for voting yes to rid ourselves of such corruption.

  • […] Professor Alex Kemp, the leading oil economist. The UK Government's oil and gas forecasts for North Sea oil are six billion barrels too low according to Professor Alex Kemp, oil economist at Aberdeen University. Professor Kemp, who is seen internationally as one of the world's leading experts,  […]

  • If only we could get the truths published by the media,but as we don’t have a Scottish controlled media we have to hope that the Fleet Street Bosses make a mistake and allow some of the truths over our oil and our other natural resources.25% of Scottish children in poverty and all this oil wealth goes to London and the speculators,help pay the bankers for screwing us,what a mess and only by getting more people to tell it how it really is do we have a chance to save some of the children.

    • Its oil exploration and so it is an absolute fact that no one knows how much is there. We do know that so far a lot has been found and that the industry itself who always under estimate (for obvious reasons) say that there is between 40 and 60 years of economic life in the north sea left. PWC have estimated that £350bn has already been raised in Gov revenues from the North Sea and just knowing what is already there that £450bn of revenues left.

      The question is with control of those revenues who will deliver the best result for Scotland in terms of investing in Scotland and getting our economy in shape for the time that oil does start to run out Westminster of Hollyrood?

      If anyone can give me an argument for using the money to subsidise the rest of the UK I would love to hear it. It seems the No campaigns strategy on oil is and just let our economy run down till we are economically incapable of independence. The Scotland future document is a detailed realistic vision plan for a better Scotland. The no campaign have no answer to Scotland future – no plan of their own, they are planning for Scotland to fail.

  • I think another 16 billion barrels evaporated last night, as Mr Darling stated that industry estimates were out by a factor of 12! and in fact only 2 billion barrels remain.

    At current extraction rates the North Sea will be shutting up shop around Christmas 2016.

    • Yes he seems to be making it up as he goes along now – this despite the fact that the Scottish governments figure is aligned to the industries predictions and the higher figure was used by the UK government.

      Oh did I mention Darling has quoted figures similar to the Scottish Governments when asked about the impact on the UK economy. The No campaign are loosing the arguments and cant even be bother to check their facts.

  • more deceit and lies from the westminster government,theyr’e distorting the figures to try and change the outcome of the independence referendum in their favour,surely this is illegal? any lawyers out there??

    • William

      Its a good idea making it illegal for politicians to lie but I think it might be a little hard to enforce:-)

Leave a Comment