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:
- The rate of taxation on North Sea oil and gas will be maintained at the current level of 62% in an independent Scotland.
- 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.
- 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.
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.