Scottish independence: Rival North Sea oil visions set out

Oil platform in the North Sea The equivalent of more than 40 billion barrels of oil have already been produced from the UK Continental Shelf, but production is declining

The Scottish and UK governments have set out competing visions for the future of North Sea oil and gas.

Scottish First Minister Alex Salmond called for a Norwegian-style approach, under independence.

Prime Minister David Cameron said reserves could be better managed with Scotland as part of the Union.

Both the Scottish and UK government cabinets met separately in the Aberdeen area, to argue the case for their proposals.

David Cameron Prime Minister David Cameron visited a North Sea oil installation ahead of the UK government cabinet meeting
Meeting Scottish First Minister Alex Salmond led a meeting of his cabinet, also in the Aberdeen area

The two events came as Westminster ministers said they would fast-track plans to get the most out of remaining UK offshore oil and gas, in the wake of an industry review which included calls to set up a new regulator.

Within just a few miles of each other, the PM David Cameron and Scotland's First Minister Alex Salmond will chair meetings of their cabinets - one in Aberdeen, the other just outside it.

Both are unveiling plans which they claim will ensure that North Sea oil and gas continues to pump billions into the economy.

The two men and their ministers will talk about this issue, which is central to this autumn's independence referendum, but they are not scheduled to meet let alone to debate - a fact which will allow Alex Salmond to claim that David Cameron is making a rare excursion to Scotland to lecture and bully.

The prime minister will respond that he has come to talk about the future of North Sea oil and gas, or what nationalists have long called "Scotland's oil".

The future of North Sea oil and gas has been a major campaign battleground ahead of the 18 September Scottish independence referendum.

Mr Salmond has outlined plans to earmark about a tenth of oil and gas tax revenues - about £1bn a year - for an oil fund similar to the one operated in Norway.

This, he said, could create a £30bn sovereign wealth pot over a generation.

The first minister, who held a meeting of his cabinet in Portlethen, welcomed the prospect of a new regulator for the oil industry, but rejected Prime Minister David Cameron's claim that the "broad shoulders" of the UK could better support the North Sea oil and gas industry.

He said an independent Scotland would "run oil and gas a great deal better" than Westminster had, and said Scotland needed "the Norwegian approach to things as opposed to the Westminster approach".

North Sea oil in numbers

40bn

barrels extracted

24bn

could remain

  • 30-40 years of production remaining

  • £57bn tax revenue predicted by Scottish Government by 2018

  • 38% fall in oil revenue predicted by Office for Budget Responsibility by 2017-18

PA

Asked whether an independent Scotland could withstand volatility in the oil market, Mr Salmond told the BBC: "Of course people in Scotland, in Aberdeen in particular, just look across to Norway where a country smaller than Scotland, more oil and gas dependent than Scotland, has handled its resources infinitely better than Westminster.

"It hasn't been so much the broad shoulders of Westminster as the vast cavern in the Treasury over the last 40 years where they've accumulated massive oil and gas revenues from Scotland.

"The reason they want to hang on to Scotland's resources is that they've done so well out of them over the last 40 years. I think the next 40 years should be Scotland's turn."

A section of the BP Eastern Trough Area Project (ETAP) oil platform is seen in the North Sea The future of North Sea oil and gas has been a major campaign battleground ahead of the independence referendum

The Scottish government's Fiscal Commission, in October 2013, said there was "clear merit" in an independent Scotland setting up two oil funds - a short-term "stabilisation" fund to buffer the effects of volatility in the oil market, and a long-term savings fund to ensure future generations benefited from the wealth.

Norway's oil fund was created by the Norwegian government in 1990 in a bid to protect the country from oil market fluctuations, and is now worth around £500bn.

Analysis

It's the clash of the cabinets in the battle over the black gold.

Well, almost.

There will be no face-to-face clash, with Prime Minister David Cameron continuing to refuse a debate with Scottish First Minister Alex Salmond.

Instead, separate governments will hold separate discussions about the future of the North Sea.

For 40 years, the industry has brought huge wealth to the UK, both in profits for the private sector and in taxes for public services.

But as the oil and gas become harder and more expensive to extract, the question is this: who is the best custodian of a fragmenting sector?

Sir Ian Wood, one of the industry's most respected figures, wants a new regulator, to ensure every last drop of oil is squeezed out in the most efficient and co-ordinated manner.

He thinks such a body could "facilitate, catalyse and remove barriers" in a "patchwork of interdependent oil and gas fields" operated by 300 different companies.

Production has been declining and estimates of remaining reserves vary but Sir Ian says there could be between 12 and 24 billion barrels left, worth between one and two trillion pounds.

Now two cabinets are competing to implement his recommendations.

David Cameron says the UK government is best placed to manage this volatile resource and to boost profits from the remaining oil and gas.

Alex Salmond insists Westminster has squandered the spoils for decades and only an independent Scotland would ensure a new bonanza.

The glory days of the North Sea may be behind us but there is still a battle for the treasure beneath the waves.

The fund owns around 1% of all the world's stocks and shares and is being saved for future generations, though the Norwegian government can choose to spend 4% of the fund each year.

The review produced for the UK government by businessman Sir Ian Wood, made several recommendations, including revitalising exploration to ensure recoverable oil and gas resources in the UK are fully explored and exploited.

Westminster ministers said the changes would produce an extra three to four billion more barrels of oil.

The Prime Minister visited a North Sea oil installation ahead of his cabinet meeting, which was held five miles away from the location of the Scottish government session.

Mr Cameron told the BBC: "What we see with the North Sea is a great success story for the United Kingdom - and now the oil and gas is getting harder to recover it is more important than ever that the North Sea oil and gas industry has the backing of the whole of the United Kingdom.

"I think this family of nations is better off together. We want you to stay. My argument is one that is unremittingly positive about the success of this family of nations.

"It is worth listening to people like Bob Dudley from BP who talk positively about the strengths the UK brings to the North Sea oil industry."

The first North Sea oil came ashore in June 1975 and production is thought to have peaked in 1999, with more than 40 billion barrels extracted so far.

Although the oil and gas are now tougher to extract, the reserves are substantial - between 15 billion and 24 billion barrels of oil equivalent - meaning possibly another 30 to 40 years of production. And there could be new discoveries such as the fields west of Shetland.

Graph
Graph

But concerns over falling production led the UK government to ask Sir Ian to review the offshore industry.

He said the UK government's Department of Energy and Climate Change (DECC) was "significantly underresourced and far too thinly spread" to effectively manage the increasingly complex business and operating environment.

During his visit to Scotland, the Prime Minister was also asked, in the event of a Yes vote in the referendum, if he would support an independent Scotland's application to join the EU.

Mr Cameron said: "Absolutely, but it's not my choice how EU applications work."

The Scottish cabinet usually meets in Edinburgh, but regularly holds sessions in towns and cities across Scotland, especially in the summer months.

Mr Cameron's predecessor as prime minister, Gordon Brown, held a meeting of the UK cabinet in Glasgow in 2009.

Before that, the UK cabinet had last met in Scotland in 1921.

More on This Story

More Scotland politics stories

RSS

Features & Analysis

Elsewhere on the BBC

  • Phantom BadgerReporting for duty

    BBC Autos discovers what makes Boeing’s new versatile and transportable war machine so special

Programmes

  • Taking a piano to Zermatt UnpluggedThe Travel Show Watch

    Climbing high to one of Europe’s biggest music festivals but how did that piano get up the mountain?

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.