Over a barrel
How much oil is left in the North Sea? The question is playing a key role in the debate over Scottish independence, since most of the bounty would probably remain in Scotland, and would make up around 15 percent of national output. But the real question isn’t just how much is left, but what politicians can do to get it out of the ground.
The UK’s continental shelf has so far produced some 42 billion barrels of oil or its equivalent. The pro-independence Scottish government says there are up to 24 billion barrels left, while the London-based Department of Energy and Climate Change says the range is 11 billion to 21 billion. Ian Wood, author of a government-commissioned report on how to maximise potential in the North Sea, believes the number is closer to 15 to 16.5 billion.
Unfortunately, these forecasts are just guesstimates. Not all those fields would be commercially viable, and the yield depends on the oil price and advances in technology. But the general pattern is depressingly clear: production has fallen by 38 percent between 2010 and 2013, according to the Wood report, and exploration is at a “critically low” level.
Reversing this trend requires bold, concrete measures. The best option for Scotland would be to follow Norway’s lead. The Scandinavian state saw a jump in exploration after it introduced a tax rebate on exploration costs in 2005, and has grown rich by putting its oil money in a sovereign wealth fund.
Scotland has hinted at North Sea tax cuts, but the snag is that Scotland may not be able to afford further tax breaks. Total public spending in Scotland is 12 percent higher than for the UK as a whole, and oil revenues enable most of this to be financed. These are already horribly volatile: in the four years from 2008/9 they oscillated from 12 billion pounds down to 6 billion pounds. Scotland won’t want them to become more so.
Scotland has been making all the right noises, including a commitment to fiscal stability and developing a regime that encourages exploration. But its formal white paper lacks detail. It will need to fill in the blanks very quickly if Scots vote Yes on Sept. 18.