For those interested I have posted a later note about the implications of a low oil price for Scotland, better read after what follows here.
I can hardly believe I’d be writing a post on the subject of offshore oil in a blog originally about the independence referendum and now about its aftermath. But a feature of the aftermath is that some supporters of independence lose no opportunity to say ‘I told you so!’
The intent is always to point out that an argument the Yes campaign used for independence and was countered by sceptics has in fact turned out to be true. It starts with the alleged betrayal by ‘Westminster’ of the timetable for agreeing more powers for the Scottish parliament and seems to extend to every issue that was a subject of dispute in the referendum.
The case of offshore oil and gas is interesting because it was so central to the economic argument for independence.
It ran something like this.
There’s a lot of oil and gas left in the waters around Scotland. The UK has wasted that resource and Scotland has certainly not got the benefit from it that it should have. An independent Scottish government would encourage further offshore developments to provide jobs at the cutting edge of technology and income for the government through taxation. That would allow it to provide better services now and invest for the future in a sovereign wealth fund as Norway has done. The SNP’s version of the case was backed up with assumptions about the future price of oil and reserves still available for exploitation. As ‘evidence’ of this case, exploration and new discoveries were cited in the deep hostile waters west of Shetland, news of which was supposedly withheld from the public, as well as the hydrocarbon potential of the inshore ‘Clyde basin’ that had allegedly been thwarted by the need for access to the Faslane nuclear submarine base. That, of course, neatly linked two issues of contention in the referendum campaign. All this was grist to the mill of the conspiracy theorists who hovered around the fringes of the Yes campaign.
The counter-argument was simple. There was no conspiracy. The SNP’s assumptions about the amount of oil left and its future price were unrealistic. Oil companies would be chary of investing in an independent Scotland where there was uncertainty about currency, EU membership, and the potential tax take. Anyhow, the UKCS (United Kingdom Continental Shelf) had passed its peak as an oil and gas province and was in irreversible decline. Industry experts, notably Sir Ian Wood, supported the counter-argument.
The ‘Yes’ complaint was given an outing in The Scotsman on 24 October (paper edition only – not online) with the headline
SNP calls for apology after North sea oil field discovery. MSP sparks row after claiming find exposes referendum ‘scaremongering.’
The ‘field’ (it’s only one exploration well yet) straddles blocks licensed to BP and GDF Suez. They have named the discovery, respectively, Vorlich or Marconi. For the sake of clarity the rest of this article calls it Marconi. According to BP the test well is said to flow at a maximum rate of 5,350 barrels of oil equivalent per day. For what it is worth at this early stage The Scotsman says it is likely to yield about 50 million barrels of oil over its lifespan.
On this basis SNP MSP Maureen Watt has said
This latest discovery highlights the ongoing great success of the oil and gas sector and underlines … that the North Sea has a bright future ahead of it.
Let’s just pause here and move back from the heat of political debate.
First, Marconi is only a single test well. There is no guarantee that it is proof of a viable oil field. Many questions determine whether an oil or gas discovery is eventually developed.
- How much oil or gas is really there? One test well is not enough to know.
- The nature of the oil or gas and of the reservoir itself – is any oil light or heavy, sweet or sour (sulphurous); is the reservoir a simple or complex one?
- How will it be brought ashore? Any single discovery these days is unlikely to justify the cost of its own pipeline. Is there existing infrastructure (pipelines or platforms) that can be used and will their owners be willing to strike a deal for their use? Could it be brought ashore by an oil tanker?
- How much will a platform and other essential new infrastructure cost?
- What are the forecast prices of oil over the life of the field?
- How is changing technology likely to impact on viability?
- What political and fiscal risks would accompany any investment and how could they be mitigated?
- What alternative investment opportunities, not only traditional oil and gas but other energy technologies like shale gas and renewables, are available to the companies involved?
Once answers to these questions have been determined, or guessed at, a lot of sophisticated modelling will be undertaken to assess whether a field is viable and a commitment to invest made.
My guess is that Marconi is a long way from such a decision and even further, obviously, to potential production.
The second factor relevant to the issue raised in the referendum debate is where the UKCS is in its overall profile as a production area. Yes it still has a long life left and yes there will be many discoveries still to come. But look at the profile of production since 1970:
Production peaked in 1999 and has been declining ever since. Between 1966 and 1976 the average size of oil and gas fields discovered in the UKCS was 248 million barrels of oil equivalent (i.e. allowing for mixtures of oil and gas). By 2000-2008 the average discovery had fallen to 26 million barrels (source: Oil and Gas UK) and is probably even lower now. Marconi’s assumed 50 million barrels is not to be sniffed at but it is not large and many Marconis would be needed to reverse the long-term decline of the UKCS. It’s not going to happen.
Taking into account the specifics of the Marconi discovery, the hazards that attend the development of any new oil field and the long term and inevitable decline of production in the UKCS it is difficult to know who should apologise for what in this saga.
If an apology is due it is surely from the SNP. They are either wilfully playing with the facts about the oil and gas industry or they are naïve enough to believe their own press statements about it. I’m not sure which is worse. In either case, there is little reason for us or the industry to trust what they say about oil and gas or its future role in Scotland’s economy.
Footnote. There is a wealth of information available on the web about the oil and gas industry, although much of it is quite technical . Examples include the UK Department of Energy and Climate Change and industry trade body Oil and Gas UK. The graph above is taken from a useful summary of the industry by the BBC.