Scotland's oil. How long before it is worth nothing?

[PentlandPirate II]

There's a warning for some countries dependent on oil for their wealth. The price of oil is falling, and with newer methods of extracting it, some oilfields risk becoming uneconomical to operate. This is particularly true of Scottish oil where the harsh climate of the North Sea, and difficult deep wells combine to push the cost of oil extraction to the higher edge of all major oilfields in the world. Oil is no longer scarce. People have stopped talking about when it will run out. There's a glut of it and the price is falling. An independent Scotland will be far more exposed to a weakening of the oil market, development of new wells cut back, oil workers made redundant. Even Mr Putin could have his problems as the well respected Telegraph reveals:

http://blogs.telegraph.co.uk/finance/am ... s-browder/

The benefits of North Sea Oil could be killed off long before the oil has dried up.

[NickB]

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Aye, poor wee Scotland, cursed with the burden of oil . . .

[PentlandPirate II]

Why do socialists always think money grows on trees? Did the White Paper say how much it was predicted the cost of becoming independent would be? Did I miss it in the White Paper? If it's there will someone please tell me where.

[NickB]

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It will be awful.

We might end up like Norway.

[NickB]

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[PentlandPirate II]

Get real. You're far too late for that.

But I was hoping you could point out where in the White Paper it explains what the cost of becoming independent would be. I would swear they said it was all in there...everything you might want to know.

The oil is only worth what someone is prepared to pay for it. If the world price of oil falls and North Sea Oil is stranded with higher extraction costs it isn't worth a bean to anyone.

[NickB]

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As usual P you are well behind the curve.

Hot off the presses - from today's Hootsmon (not an indy-friendly paper btw)

Scottish independence: Oil predictions ‘too low’

UK GOVERNMENT predictions for the future of North Sea oil are based on “very low” forecasts
which are well below independent analysis, an expert in the field said yesterday.

[longshanks]

....and your point is ?

Oh, one oil industry economist disagrees with DECC and OBR. So what ?

What makes him right and the other experts wrong ? ........ oh, silly question.

Do you believe in MMgw ?

Do you wish to avoid catastrophic global warming ?

Well the Scottish Greens are convinced (and have put into policy) that we must leave 2/3 of our oil under the ground and NEVER extract it if we are to have a chance of avoiding catastrophic global warming.

So, what's it to be ?

$ from oil or our children's future ?

In the unlikely event of a Yes vote then I hope everyone here votes Green in the 2015 election to save the planet. I will.

Does Salmond really want Scotland to have the blame as a catastrophic global warming contributer because iScotland gaily continues to extract oil despite the dire warnings of the consequences ?

[longshanks]

[PentlandPirate II]

Nick, to be precise it says:

But UK government figures last night pointed to other independent analysis showing that, even on high estimates, North Sea oil revenues would fall way short of the sums hauled in during the oil boom of the 1980s.

The row over the amount of oil still to be extracted comes after the OBR last week sharply revised down its estimates on future revenues, saying tax income between 2017-18 and 2040-41 would be £56bn, compared to its previous estimate of £67bn.

The OBR said it was “confident” oil and gas receipts were on a “declining trend”, saying by 2040, oil would account for just 0.03 per cent of UK GDP

It's not a bad idea to make plans based on your most pessimistic expectations. Optimism is never going to pay the bills. But you still don't seem to have found the bit in the White Paper that says how much the independence process will cost Scotland. Is it in there, and if not why not?

[NickB]

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It's not 'one oil economist' though, is it? In fact, everyone except the OBR thinks oil prices are going to rise.



According to the OBR - and ONLY the OBR - oil and gas revenue is volatile and likely to drop immediately after 2014 – coincidentally straight after the independence referendum. Unionist parties and other groups, such as the Centre for Public Policy Research base their own forecasts on the OBR figures. It is another allegedly independent body that in reality is nothing more than a government mouthpiece.

(Oh, and their track record when it comes to predictions is just a joke)

[longshanks]

Do keep up !

You posted a pretty little graph of predictions which were made well over a year ago.

They've all been updated at least once since then. The SNP's pet oil industry mystic Meg you quoted was commenting on DECCs latest forecast (Jan 2014) not their 2012 guess.

At least the graph of projected declining tax revenue from oil is as recent as December 2013.

Sheeesh

Oil prices are going to decline because:

1. We are very close to Peak Demand.

2. The massive oil resources of Libya, Iraq, and Iran are very very likely to come back on stream in the near future.

3. Saudi have recently said they can live with an oil price of $80pb.

Are you some kind of gambler ?

You certainly appear to wish to have an absolutely massive gamble with our childrens' future what with an iScotland being relient (20% of GDP) on a declining resource and a gamble on catastrophic global warming. You're not an evil Denier I hope.

[NickB]

Oil prices are going to decline . . .

That, Longshanks, is your OPINION (or guess, or perhaps just wishful thinking)

More educated opinions than yours think otherwise as per my graph above.

Here's a few FACTS about North Sea oil :

Fact 1) There are at least 15-24 billion barrels of oil remaining.

According to the UK Oil & Gas 2013 Economic Report, there are substantial volumes of North Sea oil and gas remaining. (page 7) Current programs have already identitied 11.4 billion barrels. (7.4 billion from existing projects and 4 billion in new fields)

Fact 2) The remaining reserves are worth over £1 trillion.

According to government valuations – based upon current and projected markets – this oil has a total wholesale value of at least £1.5 trillion. This is influenced by soaring global demand for energy. The UK government predicts a 28% rise in demand by 2035.(page 24)

Fact 3) North Sea oil and gas will last for decades and decades into the second half of this century.

Despite the scare stories, there are decades worth of North Sea oil available for extraction. The UK government concedes that oil has a future “well beyond 2055″ (section 5) in their recent report on the fields. This is a conservative estimation compared to that of Dr Richard Pike, a former oil industry consultant, who predicts a future 100 years of North Sea oil.

Fact 4) More than 90% of the tax revenue will belong to an independent Scotland

According to Dr Alex Kemp of the University of Aberdeen, over 90% of total tax revenue from oil and gas is generated in Scottish waters. This is ensured by the United Nations Convention on the Law of the Sea (UNCLOS). The ‘medium line’, used when oil was discovered in the 1960s and in 1999 when considering fish stocks, would also place the vast majority of reserves in Scottish waters so at least 90% of the oil being Scottish is an accepted fact and when official Government figures allot North Sea revenues to the Scottish accounts they do so on this basis.

Fact 5) Scotland can establish a successful oil investment fund.

The Fiscal Commission Working Group, including several acclaimed international economists and Nobel Prize winning Economists, has recommended that an independent Scotland establish an oil fund. This fund will ensure that the proceeds of oil and gas can be invested in long-term projects to improve Scotland’s economic position. As previously explained by Business for Scotland, this may be preferable to immediately using the revenue to pay down debt or increase spending, especially as Scotland is expected to return to surplus in the years immediately following independence. Norway – which now has a colossal £460 billion in its oil fund – is enjoying a 14% return on its investments. In contrast, debt only accrues at approximately 3% interest payment.

Fact 6) Westminster squandered the oil and gas revenues.

Repeated UK governments wasted the vast revenues from North Sea oil and gas. Both Labour and Conservative governments at Westminster failed to establish an oil fund. Former Chancellors Denis Healey and Alistair Darling both concede this was a grave mistake. Short-sightedness and poor fiscal planning meant that billions of pounds of bonus revenue subsidised the rest of the UK’s deficits in the early 1980s.

Fact 7) The price of oil is likely to increase.

Due to increased demand and a reduction in relative supply, the price of oil is likely to increase. The vast expansion in the global economy has seen the price of oil increase from around $10 per barrel in the 90′s to an average of $112 per barrel last year, volatility in a massively upwards direction is not really a problem. Ed Daniels, Chair of Shell UK, Tony Reynolds, Deputy CEO of Bridge Energy and industry body UK Oil and Gas all say this trend of investment and growth is likely to continue. In the medium to long term, therefore, tax revenues from North Sea oil and gas are likely to go up. The ‘volatility’ of the oil market is in fact less so than the financial services market, upon which a great deal of Westminster’s economic strategy is dependent.

Fact 8 ) Oil revenues present an environmental challenge but also an environmental opportunity.

Scotland is an energy rich nation. However, finite resources cannot be used without considering Scotland’s responsibilities to the global environment. Oil and gas present a challenge in controlling carbon dioxide production. Yet the short-term revenues from this industry can provide a long-term solution to both the economics of energy production and environmental concerns. Revenues and industry infrastructure and skills can support Scottish renewable energy projects, either directly or through Scottish oil fund investment.

This can form part of a crucial transition in energy production and consumption in Scotland – away from fossil fuel extraction towards clean, green energy sources. This is recognised by the current Scottish Government who have set and are achieving tough renewable energy targets.

Fact 9) Oil is only one aspect of Scotland’s diverse energy market and economic strength.

Oil is important to Scotland. However, it sits within a great wealth of many natural resources available to Scotland. In terms of energy alone, Scotland is developing an international pedigree in tidal, wave and wind energy. Scotland’s economy is also based on a much wider range of sectors – including retail, construction, tourism, manufacturing, electronics, textiles, banking, asset management, higher education, the creative sector, fishing, whisky and the thriving food and drink sector. In terms of tax take, Scotland’s returns from oil revenue are a far lower percentage than the receipts in Norway. Scotland’s economy is not dependent on oil revenues – they are a wealthy addition to Scotland’s overall prosperity.

Fact 10) Norway’s oil revenues might never run out.

Norway invested their oil revenues in a sovereign wealth fund. This began in 1990. It is now worth £460 billion. Managed by a state board, the wealth is invested in pensions, bonds and shares across the world. As a result of using oil revenues wisely, the people of Norway have an economy with strong, lasting foundations. Public services and tax levels in Norway have the added security of a stable fiscal balance. Quality of life and standards of living in Norway are the best in the world. This provides a stark contrast for the people of Scotland. It’s clear that Scotland’s natural resources are best managed by a government which is fully accountable to the people of Scotland. That is what can be ensured through a ‘Yes’ vote for independence.

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For more interesting links to information about Scotland's oil and the referendum try :

http://www.scottishindependencereferendum.info/oil.html

[PentlandPirate II]

Nick, you've gone too far! You're believing your own propaganda!

The trouble with oil is that the price of it is not set in the North Sea, or Scotland, or Westminster, but in the world market. There's NOTHING Scotland can do to control the price. More plentiful, more easily extracted and lower priced oil is flooding into the market. World economies just aren't using oil the way they were. Everyone has cut back and ironically it is the drive to cut back on carbon emissions which is reducing consumption. The world is moving away from using oil where it can.

The OBR is not the only organisation to predict that oil prices are going to continue to slide. Check predictions in the US, because they are the people who really control oil prices, and there are plenty experts there. The North Sea Oil industry will be amongst the first to shut down , as it is amongst the most expensive to produce. And I re-iterate the basic rule idea that it doesn't matter how much oil you have, if people can buy it cheaper elsewhere, your oil is worth absolutely zero.

[NickB]

More plentiful, more easily extracted and lower priced oil is flooding into the market.

Oh, is it? Could you please quote source and price just to show me that this isn't another wild assertion.

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World economies just aren't using oil the way they were. Everyone has cut back and ironically it is the drive to cut back on carbon emissions which is reducing consumption. The world is moving away from using oil where it can.

Oh really? The extra tens of millions of cars registered in China each year must be all-electric. I hadn't realised that. Decarbponisation of electricity supplies has no effect on road and heating fuel consumption.[/quote]

Sorry, but you are speaking complete and utter rubbish - just making things up with nothing to back them. I suggest you read this article from Tuesday's Guardian :

Oil demand to rise as global economy recovers, energy watchdog says

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The North Sea Oil industry will be amongst the first to shut down

Oh really? I expect that is why energy consultancy Wood Mackenzie has forecast that 14 new fields with the capacity to produce 438m barrels of oil equivalent will be brought on stream by the industry in 2014.

Investment in North Sea oil and gas to rise sharply, say analysts

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I worked at the sharp end of the oil industry for eight years and still have many contacts in the industry, as well as a son who is working offshore, so I do have some personal knowledge of the industry. And I have to say, I have rarely read such unmitigated, uninformed, baseless twaddle in so few words as that contained in your last post.

Aye, poor wee Scotland - cursed with all that oil. We're doomed, ah tell ye . . .

[PentlandPirate II]

And I have to say, I have rarely read such unmitigated, uninformed, baseless twaddle in so few words as that contained in your last post

Please be so kind to explain why the coal industry virtually disappeared in the UK and why the UK now imports 3/4 of its coal even though there are 50 years worth of coal reserves still sat below the UK.

[NickB]

Please be so kind to explain why the coal industry virtually disappeared in the UK and why the UK now imports 3/4 of its coal even though there are 50 years worth of coal reserves still sat below the UK.

That is almost entirely down to your pal Maggie Thatcher.

[PentlandPirate II]

How desperate. Margaret Thatcher resigned 24 years ago. If it were viable why do they continue to import coal? There's 50 years worth of it under Britain.

[NickB]

How desperate. Margaret Thatcher resigned 24 years ago. If it were viable why do they continue to import coal? There's 50 years worth of it under Britain.

I explained that elsewhere.

When the majority of the pits were abandoned they flooded and were damaged beyond economical recovery.

[Innes Newton]

No, coal mining in the UK was uneconomic. Which is why the Labour Government in six years closed more mines than Margaret Thatcher in her nine years as PM. Unfortunately the miners were blindly led by dinosaur union leaders like Scargill (now being sued by his own union) into strikes that meant the miners abandoned their pits, and allowed some to flood, killing off their own jobs! When has a union led strike ever done any good? Think of the strike at the Ineos Refinery at Grangemouth.

Anyhow, now that Iraq, Iran and Libya are stepping up oil production, the US is going full tilt at fracking, and the massive Chinese economy has slowed drastically, things are looking slightly worrying for North Sea Oil. Everything is conspiring to undermine the oil prices kept artificially high by Saudi Arabia and OPEC and in just a short time the prospects for North Sea Oil remaining economically viable are looking somewhat less certain.

Fortunately the foreign big investors and the big operators can upsticks and go where the costs are lower. Scotland can't. Scotland's oil could be worth nothing if it is priced out of the market.