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.
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.