This Rather Shafts The Economics Of Scottish Independence

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If Scotland ever were to go independent and float away on that sea of oil money it needed to do it several decades ago. Because there isn’t that sea of oil money any more. Partly because the oil price has fallen, partly because the North Sea fields are getting old and partly because previous Chancellors were greedy for the tax money back then.

Scottish independence is still a great idea of course, why should we English continue to pay for them? It’s just that Scotland’s going to be a poorer place when it goesit goes.

Over a third of North Sea oil and gas reserves may be uneconomical to extract, according to a new report that casts a shadow over the sector.

Some academics and politicians say the research, produced at the University of Aberdeen, diminishes the economic argument for Scottish independence.

The researchers have found that an oil price of $25 a barrel means that more than 3.9bn barrels – which accounts for 35pc of all available hydrocarbons in the North Sea – will be unprofitable to produce.

Brent crude, the European benchmark oil, has fallen by 50pc since the start of the year, hammered by a price war between Russia and Saudi Arabia, and then further hit by global lockdown measures put in place to curb the spread of Covid-19….

What’s going on here is that the definition of a mineral reserve is being correctly used. It’s entirely an economic concept, one encoded into the law. This being something that the environmentalists always, but always, get wrong but which is being correctly used here.

A mineral reserve is something that we know, because we’ve proven it, that we can pull up at current prices, using current technology, and make a profit doing so. If we’ve got to suppose higher prices, or better technology, or we don’t make a profit, then it’s not a reserve.

Oil prices have fallen. Some of that stuff under the North Sea won;t be brought up therefore. So, there will be no money for the government from it. Scotland has less future cash to float away upon.

There are those two other points as well. The fields are getting old, there’s just less oil in them anyway. And then there’s that tax thing. Previous Chancellors decided it would be a good idea to get all the tax they could each year. Even as they agreed, well, yes, there will be large costs at the end of the useful life of a field. Those rigs have to be taken down again after all. But putting money aside, year by year, in the accounts of the oil companies would reduce the amount the Chancellor could splash on the electorate this year.

So, that’s not what they did. Instead, the oil companies paid full royalties and extra profit taxes even while they weren’t saving any money for those decommissioning costs. When the decommissioning did occur they could get a repayment of those past taxes to cover those costs. And guess what? The decommissioning costs are now. The North Sea fields are just about to go negative in cash flow for government. Because all the money and more was already spent. Government’s had more tax than it should have done and has spent it.

Scotland simply cannot depend upon oil revenues to go independent. Because, roughly enough, there ain’t no money there. This might dampen the desire to vote for independence of course but there’s a solution to that. Give the English a vote and we can wave them off.

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jgh
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jgh

If furriners can vote to determine Scotland’s future in the UK, presumably furriners should have had the right to decide the UK’s future in the EU.

Matt
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Matt

But surely England can declare independence from rUK?

Quentin Vole
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Quentin Vole

I doubt oil will stay at $25 indefinitely. The current problem is that producers were meeting world demand when that demand dropped off a cliff leading to (almost) zero prices at the well. But global lockdown is starting to end and we’ll see consumption go back up (sure, not to where it was, but still).

Disclaimer: I’m not an oil analyst so the above is probably bollocks.

Spike
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Spike

Yes, if Scotland were to go independent, with hopes of three square meals a day for everyone for free off taxes or profits from that oil, it will be harder with oil at $30 a barrel. Of course, Hong Kong did fine with no oil reserves at all. The only important “reserve” is people, with the freedom to exploit the next big thing. (An effective rebuttal is the Scottish Parliament’s stance on individual liberty.)

Snarkus
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Snarkus

Spike, does HK have large marine machinery to dismantle ? BTW, isn’t it haemoraging financial businesses, so its future is beginning to look shakey

Spike
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Spike

Yes, Hong Kong’s future looks shaky, and a reason is doubt over the future supply of “people, with the freedom to exploit the next big thing,” to quote myself.

Boganboy
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Boganboy

But Stonehenge hasn’t been dismantled, even though it’s been about 5000 years. And there’s lots of other old ruins still lingering throughout the UK. So surely they can put off getting rid of the oil rigs. It’ll just be for the duration of the emergency.

CJ Nerd
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CJ Nerd

“And guess what? The decommissioning costs are now.”

And Adam Smith’s Invisible Hand has led to the building of a ship called Pioneering Spirit, which can sail up to an oil rig, lift it off its legs, and take it away for dismantling.

7m47s video here.

1-hour documentary here.

Phoenix44
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Phoenix44

And costs per bbl go up as fields deplete. A production platform built for 500,000 bbls/d costs not much different to run when it’s pumping 200,000 bbls/d.

Spike
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Spike

No, some costs go down, such as the cost of building and deploying the platform in the first place. Tenth-year revenue from a lot of products that are already tooled up, is “free money” – except that you now have to use it to engineer the new thing that you’re going to sell when the old product finally hits zero.

Bernie G.
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Bernie G.

I remember Aberdeen pre-oil, when the economy depended on fish, agriculture, shipbuilding, papermaking and Crombie overcoats. Not sure there’s a lot of that left either.

Perry de Havilland
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The economics are undeniable, but I am less keen to throw Scotland’s many Unionists under the bus as collateral damage just because I loath the SNP

Janner
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Janner

If the NSP desired independence uber alles, they should be happy with a referendum involving the entire Union.