Scottish oil revenues massively underestimated according to new report

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Sunday, 05 May 2013 13:20

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By Martin Kelly

Scotland is sitting on oil and gas revenues worth up to £4 trillion according to a new report set to be published this week.

The David Hume Institute, a highly respected non-partisan body, will this week present analysis which will show that current estimates on the amount of revenue still to be generated by the North Sea have been massively underestimated.

The report is based on figures by economists at the Paris based Organisation for Economic Co-operation and Development (OECD) who have forecast that the price of a barrel of oil will rise to between $150 and $270 throughout the coming decade.

The OECD envisages a baseline value for a barrel of oil of $190 which, the new report will say, will lead to an independent Scotland benefiting to the tune of between £2.25 trillion and £4 trillion.

The figures are higher than the $100 per barrel used by the Scottish government in its own analysis which suggested around £1.5 trillion of revenue would be generated from the Scottish oil and gas sector.

Unionists have claimed that the price ranges for a barrel of oil would be a problem for an independent Scotland and that the Scottish economy would be at risk from an over-reliance on the resource. However figures have shown that a newly independent Scotland would rely less on its oil and gas sector than Norway.

The Scottish government has also claimed that a newly independent Scotland would eventually be able to establish an oil fund similar to the Norwegians which would allow future generations to benefit from the finite resource.

In a statement, the official anti-independence campaign Better Together said: “This report shows the volatility of oil prices. Some people say the price could be as low as $90, some say it could be as high as $270. No one knows, so why would you want to gamble?”

News of the new report was welcomed by the SNP SNP Treasury spokesman spokesman Stewart Hosie who ridiculed claims by Unionists that oil would be a problem for an independent Scotland and claimed the only debate now was the scale of the financial benefits that would accrue to Scotland.

Mr Hosie commented: “The absurd case that the No campaign are trying to put across is that it would be some kind of a problem for Scotland to have access to the wealth of our oil and gas resources – but absolutely fine for Westminster to keep control, even though successive UK governments have squandered the revenue.

“In fact even without oil and gas, Scotland’s economic output per head is the same as the UK’s – which means that our North Sea resources are a massive bonus.

“As these figures indicate, the only debate is the sheer scale of that bonus. With over half of the revenue from the North Sea still to flow, and the industry entering a new boom, it is vital that Scotland gets the benefit this time round.”

The latest forecasts by Oil and Gas UK suggest that production could reach the equivalent of 2 million barrels a day by 2017. This would represent a 30% increase on current production levels. Analysis published by Professor Alex Kemp in November 2012 also projected that production could rise in the years to 2017 under a number of different scenarios

In contrast, the UK Government’s Office for Budget Responsibility (OBR) forecast that production will decline by 4% between 2012 and 2017 The analysis by DECC upon which the OBR forecasts are based notes that they incorporate “very significant negative contingencies to the aggregate figures” based on DECC officials’ judgement and past forecast deviations.

Speaking to Newsnet Scotland in December, Professor Kemp challenged the OBR forecasts and said: “The OBR’s combination of low production estimates with low price estimates is pessimistic compared with other predictions including our own.”

The new report from the David Hume Institute coincides with newly published figures that show the oil and gas industry supply chain has just recorded record sales.

Latest figures from the annual oil and gas survey of international activity show a 5.8 per cent increase in total sales from the sector to reach £17.2 billion, with international sales rising by 8.4 per cent in 2011-12, reaching a record 47.6 per cent of total sales.

Scottish companies now operate in over 100 markets across the world.

Combined UK and International sales figures show overall growth for the 14th year in a row, and come as Scotland’s Energy Minister, Fergus Ewing, travels to take part in the Offshore Technology Conference in Houston, Texas, where he will lead a trade delegation of over 50 Scottish companies working in the oil and gas services sector.

Commenting on the new figures, Mr Ewing said:

“Scotland has established a global reputation within the oil and gas sector and I am delighted that these latest figures show an increase in international sales, which now account for almost 50 per cent of total sales.

“The value of this activity to the economy and exchequer is substantial. International sales by Scotland’s oil and gas supply chain rose by 8.4 per cent in 2011-12, to £8.2 billion – almost double the growth from the previous year.

“Scotland is leading the way in the world of oil and gas and has a clear competitive advantage in this truly global industry. There are huge opportunities open to us internationally and we are determined to make the most of them.

“The Scottish Government recognises the substantial contribution that the oil and gas industry makes to our economy. We are working with the industry to continue to strengthen Scotland’s position as a global leader in the sector and these figures mark further growth in this important part of our economy.”

Strongest growth was reported in the Middle East, but the African region remained the second most important with a 5.9 per cent increase in sales. Brazil, the USA and Australia were new markets of the greatest interest – with sales in Australia alone increasing by 9.4 per cent.

North America remained the top region for international sales with £2.6 billion of sales targeted into this region, an increase of 2.8 per cent since 2010.

The figures are from the latest annual survey of international activity in the sector from Scottish Enterprise and the Scottish Council for Development and Industry (SCDI).

Welcoming the results, David Rennie, Scottish Enterprise’s international head of oil & gas said:

“Growing export levels is a key priority in Scotland’s industry-led Oil & Gas Strategy, because we know that this type of activity has the potential to make the biggest impact on Scotland’s long-term economic growth.

“These latest figures are outstanding, particularly at a time when many regional economies have been stagnating. They show that our expertise in oil & gas is in increasing demand across the globe, and clearly demonstrate the growing importance international markets have to play in the long-term future of the industry in Scotland.

“We’ll continue to work closely with companies across the oil & gas supply chain to help identify new opportunities for growth at a global level, particularly in our priority markets such as West Africa, the Middle East, Australia and Brazil.”

Ian Armstrong regional director, Scottish Council for Development and Industry, added:

“The global nature of Scotland’s oil and gas supply chain is once again illustrated by this latest set of figures.

“The international expertise and success of the industry is built on outward looking and innovative companies based in the North East, Highlands & Islands and other parts of our country, who consistently proved themselves to be world leading in identifying and capitalising upon business opportunities in oil and gas provinces around the world.

“As energy expertise in Scotland continues to build across other sectors, SCDI anticipates this trend will continue to benefit Scotland for many decades to come.”