David Carr: Beyond the McCrone report - changing Scotland’s cultural dependence on oil

CommonSpace columnist David Carr explains why oil is so over - and why that might not matter

EARLIER in the year, the discovery of new offshore oil reserves west of Shetland was greeted with celebration. 

For some, this bolsters the case for wealthy future, harking back to Professor Gavin McCrone’s suppressed 1974 Scottish Office report which stated that an independent Scotland would have a "chronic surplus to a quite embarrassing degree". Here is evidence that Scotland is big, rich and clever enough to stand on its own.

But the report is over 40 years old. The oil industry has been in a state of flux. It is worth revisiting it to see if its cherished assumptions still hold.

Oil has been a persistent theme in Scottish politics, since the "It’s Scotland’s Oil" slogan of the 1970s. It has loomed large in grievances against the union: "Scotland is the only country to discover oil but get poorer." 

Social media memes talk of secret oil reserves in the Firth of Clyde, or of the redrawing of the English/Scottish border to deny Scotland its share.

During indyref, there was talk of creating a Norwegian-style sovereign wealth fund. With the oil price riding high at $112 per barrel, this made sense. Perhaps we would not match the size of Norway’s fund - too many wasted years - but we would still be able to put something away for the future.

The decline of oil

But since 2014, the oil price has crashed to $30 and is now hovering round about the $50 mark. Few analysts expect a recovery in the short term. This is not mere instability. The steep drop reflects longer-term structural issues in both the oil industry and the wider global economy.

Critics of the economic case for independence have said that the low price leaves a hole in a future, Scottish economy. Indeed the effect of the price downturn can be seen in the present in the effect on people’s lives, with large-scale redundancies and massively increased use of food banks. 

Optimistic recent reports such as this and this from The National reveal themselves on scrutiny to be the industry talking up signs of limited recovery from a severe low point. There is no sign of a boom.

But others have riposted that oil prices are volatile and bound to go up. New reserves - including the Kraken field, which has just started flowing - only add to Scotland’s balance sheet and prove the critics wrong.

Unfortunately, the critics have a point.

The new oil finds must be treated with caution. While the reserves contain an advertised 2.3 billion barrels of oil, it is often of low quality. West Shetland oil contains so much sulphur, acid and water that it has to be stored and processed separately to higher quality Brent Crude. Its even lower price reflects that. 

As to location - much of the reserves are under deep waters in a type of fractured rock that makes the oil difficult and costly to get at - all adding to operating costs. Exploration and exploitation have only been made cost effective with additional government help.

Following tax giveaways by George Osborne, North Sea oil revenues went negative in 2016. The Office of Budget Responsibility predicts that they will remain so until at least 2021. 

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Process that for a minute, if you will. The UK Government is now effectively subsidising oil companies to pump oil. This is what oil companies say they need to keep their operations viable. Money is still being made - but it is not going to the public purse.

In its General Election manifesto, the SNP also urged the Westminster government to use  targeted incentives to develop "small pool discoveries" and to defray the cost of decommissioning old platforms. While their motives may be noble - safeguarding jobs - these incentives should be seen as subsidies to an industry in decline.

The energy revolution

Meantime, change is afoot. The Norwegian Oil Fund and Denmark’s Dong Energy are starting to get out of fossil fuel companies. Perhaps they know something? 

What they know is that an energy revolution is coming. This has two drivers - survival and economics.

The climate is in crisis. Scotland and other countries have accepted the need for strong CO2 reduction targets. The inconvenient truth is that burning our oil reserves would breach the Paris Treaty and conflict with the Scottish Government’s own Climate Act. 

This global imperative has kickstarted a technology industry in renewable energy which is now at the stage of cheap, mass production. 

Seven oil and gas groups, including France’s Total, Royal Dutch Shell and Norway’s Statoil, have together invested almost $15bn in renewables over the past four years. Meanwhile, all the major car manufacturers are planning electric models - and abandoning suppliers from their internal combustion supply chain. The price of batteries and solar panels is tumbling as companies in China and India ramp up production, for domestic use as well as export.

Even in the US, where Trump has notoriously pulled out of the Paris Treaty, there is some hope. The business opportunities in renewable energy are just too good to miss. Already there are more jobs in renewables than in coal - Trump wants to save the latter - and one of the fastest growing job titles is wind turbine engineer.

All these 'disruptive technologies' are a threat to oil and gas prices in the medium to long terms. Many analysts predict a catastrophic collapse in oil price within years, especially as electric cars become more prevalent. 

Scotland’s energy wealth

As Opec leader Sheikh Yamani once said: "The stone age did not end because we ran out of stones." The answer to what comes next is fairly obvious.

If Scotland has, as some say, been paradoxically cursed by the discovery of oil then it remains blessed by some of the richest potential renewable energy sources in the world.

Already, Scotland has an installed capacity of around 9000 MW - mainly onshore wind. In favourable conditions, we can generate more electricity than we need.

The biggest potential, though, is in offshore wind. So far, Scotland has around 200 MW of onshore wind already installed, with planning permission for another 4GW. Tidal energy shows great promise, too, with the world’s most powerful tidal plant being tested in Orkney. 

But the technology is only beginning to be rolled out. Currently, wind turbines are installed near-shore. Floating turbines, capable of being installed in deep water, will give access to more, stronger winds, far offshore. Norway’s Statoil is providing the technology with an installation off Peterhead. 

Given the right infrastructure, Scotland is more than capable of meeting its energy needs - and of exporting a surplus through sub-sea interconnectors.

Making the transition from oil to renewables

Exploiting these resources will be challenging. But Scotland already has much of the physical infrastructure that will be needed for rolling out renewable energy on a large scale. 

Thanks to the legacy of the oil industry there are already harbours and ships that could be 'upcycled' for manufacturing and operating large offshore plants. As an example, Kishorn Dry Dock will come out of hibernation for the construction of the world’s largest floating wind farm.

Equally important is the human infrastructure - the people employed in the oil industry. It is essential to make a 'just transition' from oil to renewables, so that people’s jobs and livelihoods and communities are protected. Luckily there is great overlap in the engineering and seafaring skills required by the two sectors. 

This might also be a good time to think about investing in re-skilling, rather than simply continuing to support oil though its death throes. Universities and colleges will need to break the habit of focusing their attention - and their support - on oil, and instead point students to learning that will actually be useful for a renewables-based future. They can be encouraged and supported to develop transition training and new courses. 

Making renewables pay

Unfortunately there is a significant barrier to making renewable energy really take off:  funding. The UK Government has cut subsidies to renewables, presenting severe challenges to the industry.

Investment remains an issue. Let’s be clear - the transition cannot be financed by oil revenues. What revenues?

For the scale of roll-out required, more creative ways are needed to fund renewables. One such is a Scottish National Investment Bank (Snib) proposed by the New Economics Foundation and the Common Weal. This would be achievable within current devolved powers and would focus on infrastructure development for social and environmental objectives, including mitigating climate change.

It will also be important to maximise the revenue that accrues to the public - and this means addressing ownership of the infrastructure. State, municipal and community-owned energy companies and commercial partnerships are common both in Europe and elsewhere - such as the Danish majority national Dong energy or the Norwegian municipal partnership, Andritz Hydro Hammerfest. 

Beyond oil: a cultural shift

The elements are there for a Scottish renewable energy future. But it won’t happen on  its own - there has to be a will. This will mean challenging some deeply held assumptions about our economy.

Oil can no longer be counted on to make Scotland rich. A vaunted, Norway-style sovereign wealth fund is a thing of the past. Without intervention, we will struggle to replace declining jobs. These truths are hard to swallow for those who regard oil wealth as a plank of the independence case.

What is needed is a cultural shift. It is high time to stop being excited by Scotland’s high carbon, economically marginal resources. It is time to get excited - very excited - about renewable energy.

Picture courtesy of Bryan Burke

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Comments

SusanS03

Tue, 07/04/2017 - 18:04

Good article. Great to read something with a positive message for change.

Arthur Blue's picture

Arthur Blue

Tue, 07/04/2017 - 19:17

David Carr is correct. The Age of Oil is coming to an end ( which is something to ponder on, as there are people still alive who were born before it really got going ). The oil companies may still be making some money, but it has been said that last year the UK government paid out quite a bit more in decommissioning tax rebates than it got in as royalties Oil will of course continue to be useful, as a transition fuel and as a chemical feedstock, but the energy future lies with renewables, and Scotland, fortunately, has plenty of them.

Sceptical Scot

Wed, 07/05/2017 - 14:11

'Professor Gavin McCrone’s suppressed 1974 Scottish Office report'

This report was not 'suppressed', it was a briefing paper authored for a specific purpose; a civil servants briefing paper for an incoming minister, they are NEVER published. The main gripe among nationalists regarding this paper appears to be that the (continued) discovery of oil reserves were (i) underestimated (ii) were certain to fuel political fortunes of the SNP. Both these findings were axiomatic to even the most cursory observer of Scottish politics and economic. There is no conspiracy here. Here is Professor McCrone on the issues raised.

https://www.youtube.com/watch?v=x2F-H01Qm1I

MauriceBishop

Wed, 07/05/2017 - 20:38

Since Sceptical Scot has pointed out the error about the McCrone report, I will concentrate on pointing out the error of the "oil fund" nonsense. Thanks to the FOI we know that the SNP government understood that any and all options for an "oil fund" would mean higher taxes, cuts to services, or more debt, and that the 2013-2014 talk about establishing an oil fund while also engaging in deficit spending would actually COST us. Of course, knowing it was a dumb idea didn't stop Salmond, Sturgeon and Swinney from saying it was what they would do. And of course it doesn't stop today's nationalists from treasuring it as a source of grievance.

Scotland has been "very excited" about renewable energy for years now. The SNP have handed millions in public sector funds to private corporations. Can anyone name me even one such project that has delivered even half the number of jobs promised at the time the FM of the day posed for the selfie with the people who trousered the money?

Sceptical Scot

Wed, 07/05/2017 - 22:16

Quite Maurice. Norway is often cited as the comparison. There are some obvious similarities, but just as many obvious differences. For example, one small example, in Norway it costs circa £16 to visit a GP (£25 out of hours), perhaps an iScotland could indeed afford a sovereign oil fund if an iScotland chose such a method to fund it's health care provision. I have yet to hear anyone on the indy side argue for such a situation? Any takers?

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