David Carr: The truths and irrelevancies about Scottish oil

Commonspace columnist David Carr talks about the so-called 'grievance culture' surrounding oil - and why we must find a constructive way forward

MENTION of oil always sparks an interest in Scotland as the backbone of a strong economy. Historically it has been mismanaged, but what should be done about this? 

The indy media have featured various oil article lately. In advance of the latest GERS figures, a recent edition of the Sunday Herald splashed with a front page feature on Westminster and the big lie about Scotland's oil. Recently, The National has featured stories talking up the oil industry’s prospects - such as this and this.

The Sunday Herald feature in particular generated a degree of online comment, some of it from opponents of independence accusing a "grievance culture". 

It is undeniable that successive UK governments have squandered oil.

It is undeniable that successive UK governments have squandered oil. Oil was used to maintain the balance of payments, keeping the currency strong and favouring financial products at the expense of other industries. 

This had drastic consequences for the now post-industrial wastelands of the UK. The UK as a whole, not just Scotland, has a right to be aggrieved. That is, if it is a grievance to want a competent government and a sound economy.

In brief, The Sunday Herald report looks at how UK oil has fared since 2014. As reported by Business for Scotland (BfS), Norway has made nearly £29.33bn in oil and gas revenues, while the UK lost almost £22.8m. This is due to the cutting of taxes by the UK while Norway left its high rates unchanged.

(With respect to BfS, it does not say that Norwegian fields are larger and more geologically easy to operate in. Sensible Norwegian policies have played their part, but it is difficult to see how UK oil could have generated substantial revenue in the same timescale.)

In fact you could put the origins of this mismanagement further back in time with the failure to establish a sovereign wealth fund. Norway has managed to salt away $958bn for the future - and there are careful management structures in place to ensure that it is used wisely with respect to the rest of the economy.

This is a crucial time, not just for oil, but for energy as a whole. Oil isn’t the only area where the UK Government is failing.

Prior to indyref there was much talk about a Scottish sovereign wealth fund. With the oil price having shot up to $112 per barrel, this looked attractive – even if it, after so many wasted years, would not catch up with Norway’s.

But the oil price crashed and is now hovering around $50 per barrel. Granted, oil price is notoriously volatile - but this crash has every appearance of being related to global trends and there is no recovery in sight. It is difficult to see how a viable oil fund could be built up. 

Meanwhile, oil companies have been telling the UK Government that it needs subsidies to defray various costs (more difficult exploration; decommissioning platforms near their end of life). Former chancellor George Osborne was glad to oblige, and so taxes were cut and oil revenues turned negative.

But was there an alternative? The SNP’s 2017 manifesto suggests maybe not: "Only after pressure from SNP MPs did the Tory chancellor abolish the petroleum revenue tax and halve the supplementary charge to 10 per cent. That’s just a start."

I quote that quite genuinely not to discredit the SNP - it is rightly concerned about jobs -  but to point out a bind, because whereas we can talk all day about how oil has come to this, the point is: what can be done about it?

I want to say this clearly: oil will not make Scotland significantly wealthy in the future. Too late.

This is a crucial time, not just for oil, but for energy as a whole. Oil isn’t the only area where the UK Government is failing - we could add lack of support for renewables; how to secure energy jobs; energy resilience (e.g. whether to invest in nuclear); fracking

Because here’s the real deal: oil is over anyway. This might sound perverse, given regular reports of new oil finds. In truth, many of these are of low quality and hard to extract. Furthermore, the UK and Scotland have signed the legally-binding Paris Agreement and extracting all our reserves would break that. And in any case - global competition from renewables will keep the oil price down, making it even harder to draw revenues from the North Sea.

I want to say this clearly: oil will not make Scotland significantly wealthy in the future. Too late.

Previously, I have written about Scotland’s "oil culture". By this I mean the political mindset that places so much importance on oil that it becomes difficult to frame the independence question without oil as one of its key pillars. 

For 40 years, people have grown up with the idea of mighty oil. For many, it is our livelihood or part of the landscape of our lives. But times have changed, and we must change our minds with them. 

For 40 years, people have grown up with the idea of mighty oil. For many, it is our livelihood or part of the landscape of our lives. But times have changed, and we must change our minds with them. 

At some point - soon - we will be making a transition away from fossil fuels, and as things stand at the minute we’re in danger of getting things very wrong. Sound familiar?

If we were sensible, however, we would make a plan for energy - not just oil. (Including oil, however, nobody’s suggesting we should simply stop pumping). It was the ideological lack of a plan that set the conditions for the UK to fail where Norway succeeded. 

This is a critical time for oil, and for the transition away from fossil fuels. Indy spats about oil sit in a global context. What is needed is not simply to rehearse past iniquities - no matter how grievous we feel they may be (and some of them are!).

We need to move on. We need to give more attention to where we go from here.

Picture courtesy of nate2b

Look at how important CommonSpace has become, and how vital it is for the future #SupportAReporter

Comments

MauriceBishop

Fri, 09/01/2017 - 16:22

"Prior to indyref there was much talk about a Scottish sovereign wealth fund. "
Well, yes, but then the White Paper came out and showed that the SNP had every intention of engaging in deficit spending as far as the eye can see, which makes all that talk nonsensical.
Shortly thereafter disgruntled civil servants tipped of Better Together about the existence of this document, which was forced into the light of day via FoI:
http://www.gov.scot/resource/0043/00435599.pdf
It proves that the SNP politicians who were talking about an "oil fund" knew that it was a terrible, counterproductive idea.

UCSvet

Fri, 09/01/2017 - 20:22

Let's not write oil off too soon as a natural resource.
Firstly,whilst oil as an energy source is environmentally damaging we can't discount its usefulness as a chemical feedstock for a number of products. Only a tiny fraction of a barrel of oil is used as petrol and diesel.
Westminsters reaction to the oil price drop was entirely predictable. It played into the Westminster narrative. It was the Scottish government's response that left a lot to be desired. Demanding cuts in taxes for the oil field operators and contractors Instead of demanding that they withdraw their threatened redundancies and attacks on oil worker's conditions would have been the correct response. This is an industry that has sucked billions out of the North Sea.
Has no one ever heard of the parable of 7 fat years and 7 lean? These contractors had plenty of " fat" to see them through the oil price drop but instead chose to increase their exploitation of oil field workers.
The Scottish government should have charged the industry with gross mismanagement of Scotland's natural resources and promised that when these resources were in the hands of the people of Scotland then future licences would only go to those operators who had shown loyalty to their workforces.
As to the future of the rigs instead of simply talking of their decommissioning we should be researching what condition they are in and what uses they can be put to when their use as an oil rig is over. Why should we simply dismantle these structures if they could be put to some use.

RadioJammor

Sat, 09/02/2017 - 10:03

Using GERS figures for an Indy Scotland again, Maurice? Those scenarios are firmly based on an Indy Scotland acting in exactly the same way as Westminster.

They are also based on GERS figures, referring to running deficits that are notional, don't actually exist, and wouldn't accurately reflect the actuality of any Indy budget, and even if they did, they would have been created by the stewardship of Westminster. In other words, the basic premise taken in that document is deeply questionable.

I might also question why they chose to compare the average growth in the Norwegian oil fund to the yield of Government bonds, for that set period of time. The oil fund is significantly older than that, so any snapshot taken of a strictly defined period of time smacks of the statistician selecting his data in order to get the result they desire.

An oil-fund wasn't a "terrible, counterproductive" idea, strictly belonging to the SNP. It was an excellent idea, but as the article has stated, its time has now been and gone; thanks in no small part to the massive, permanent cut in income tax receipts that the UK Government has since brought about, which makes that loss of revenue from falling prices a whole lot worse on the GERS balance sheet.

The SNP hailed this assistance to the oil industry as a result of their influence. That's pretty pathetic haymaking, tbh, when it has affected GERS so much that it has been used by Scottish opposition parties as an excuse to claim Indy wouldn't work financially - and that is what you, Maurice, should be beating the SNP over the head with, instead. The gave the UK Gov the excuse they wanted to do this, and then tried to make it out as getting what they wanted, when what was really wanted was a short-term fix/assist.

But then that would require you to acknowledge that this permanent tax cutting on oil by the UK Gov was the wrong response to the drop in oil prices, and that it was no doubt made with the malicious intent of screwing with the GERS figures, on top of the usual Tory ploy of cutting taxes, on any pretext, in order to push public money into the private sector, and stay there.

Somehow, Maurice, I can't see you admitting that.

MauriceBishop

Sat, 09/02/2017 - 13:57

@Radio Jammor: No, I'm not using GERS. I'm using a DIFFERENT publication of the Scottish Government to demonstrate the dishonest rhetoric that the SNP uses in pursuit of independence.

Scott Egner

Mon, 09/04/2017 - 15:43

We tend to take the mercantilist approach to energy yet its role in the economy is about much more than its export value in the national currency. Not only is it important to look at what oil did for the UK and what it could have done but what the UK would have done without it.
If economic growth is the aim then it is far easier to achieve it consistently with access to cheap and abundant energy. But it's much more than that. Events in Texas are a good reminder that societal resilience and security very much depend on energy.

The economy doesn't just depend on energy, the economy IS energy, yet the mainstream would treat it as some sort of externality whilst looking at money as finite. It's an economics stuck in the Bretton woods era unfortunately. Of course actions speak the loudest and we see round the world what governments will do for resources, Iraq being a recent major example.

Of course we will still be told that a country that could easily power its economy with sovereign energy somehow isn't viable.

CommonSpace journalism is completely free from the influence of advertisers and is only possible with your continued support. Please contribute a monthly amount towards our costs. Build the Scotland you want to live in - support our new media.