A FUNNY thing happened on Friday to the share price of Hurricane Energy, which is listed on the London AIM stock market for small but exciting global companies. In February you could have bought Hurricane shares for 9 pence. On Friday, people were rushing to buy a piece of the company. Reason: Hurricane has just announced proof of a major discovery in the still-untapped West of Shetland oil fields that sit on the edge of the Atlantic Ocean.
For decades the West of Shetland oil field has offered the promise of a second birth for the North Sea oil industry. But hunting and – even more difficult – delivering oil and gas from the deep Atlantic sea bed is more challenging than from the stormy North Sea. The latter, at least, has the advantages of proximity to the mainland and sea depths which are actually quite shallow by oceanic standards. Which explains why exploiting West of Shetland oil has remained a gleam in the eye rather than an industrial certainty.
Enter Hurricane Energy. Hurricane is an oil prospecting firm hunting petroleum in an unusual place: the deepest, oldest “basement” rock formations on the planet – granite formations that usually lie below the normal oil-bearing layers laid down in the later era of primitive forests. Ancient rock formations like those West of Shetland, in fact. The ocean floor West of Shetland has some of the oldest rock on the planet, created 2.5 billion years ago.
Loading article content
The natural position for any oil-producing layer is above the basement, which has made people wary of committing to oil exploration West of Shetland. In fact, West of Shetland has some of this more normal oil-bearing rocks. Test bores have identified so-called Kimmeridge Clay deposits, which are responsible for the quality and volume of oil the North Sea has produced since the 1970s. But the major energy firms with a stake in West of Shetland have remained wary that there was enough oil in these Kimmerage Clay deposits to justify a major investment commitment, given the difficulty of getting the stuff out.
This is where Hurricane Energy comes in. Hurricane’s owners have been betting on a theory that sometimes the earth’s tectonic forces can cause disruption in the deep layers of rock. As a result, the basement rock layer is forced up by as much as a kilometre, like a giant piston. This process causes heavy fracturing of the granite. It also traps and concentrates oil from intermediate layers. This petroleum then seeps back through the naturally-fractured basement rock and accumulates in new reservoirs along the flanks of the underground granite “mountain”. And this oil is easier to get at.
This is exactly what Hurricane claims to have found West of Shetland. The company’s Lancaster well has revealed a column of oil 1,620 metres deep, only 620m below Hurricane’s first estimates. Which means the total reserves are likely to be “significantly greater” than the 200m barrels initially forecast. As a result Hurricane’s shares rocketed. The closing price on Friday was over three times higher than its 9.50p share price in January this year when oil prices hit their lowest level in twelve years at around $28 a barrel.
The moral of this tale dear reader, is this: Scotland abounds in un-utilised economic potential. We have mineral resources galore – though for the record I think our hydrocarbons should be used for making plastics and pharmaceuticals rather than burned off as greenhouse gases. And we have world-class human capital – three of Scotland’s universities are classed in the top global one hundred. Yet for two generations our GDP growth has lapped around a miserly 1.5 per cent per annum, half or less than similar small industrial nations. Leave aside obvious caveats: GDP growth doesn’t mean equal standards of living for everyone, and it often comes at the expense of the environment. But using GDP as a rough proxy, Scotland is not using its undoubted native potential to create the wealth we need to look after our old, heal our sick and give our children a future. Why not?
The answer is complex, of course, but it boils down to being trapped inside a post-war UK which subordinated actually making things to the paper-shuffling and obscene bonus culture of the City of London. Whether during our great Clydeside industrial era, or during the period when North Sea oil was booming, Scotland paid more into the UK Exchequer than it got out. But this largesse was not used to boost productivity or create global manufacturing companies. It wasn’t even saved for a rainy day, as they did in tiny Norway. Instead Scotland’s wealth – more properly the sweat and ingenuity of its workforce – was squandered on Thatcherite and Blairite tax cuts and endless colonial and neo-colonial wars.
If Scotland wins its independence in the wake of the vote in England to quit the EU – a decision based on social despair exploited by populist demagogues – our task will be to rebuild a once-powerful Scottish economy that has been systematically undermined by Westminster short-termism and the disinterest of London’s financial Mafia. Doubtless, various factions in the disintegrating British Labour Party will blame our weakened economy on Scots themselves, and argue we need London subsidies to survive. But that’s the equivalent of saying an unjustly imprisoned man should be grateful for the scraps he is fed by his gaoler, instead of trying to free himself.
Light beckons. The First Minister has set up a Scottish Growth Commission precisely to draw up a blueprint to boost GDP, productivity and trade. Growth is the only sure route to closing any temporary budget deficit bequeathed to Scotland by the economic incompetence of Westminster. Note: Britain’s (and Scotland’s) deficit is rooted in Gordon Brown’s unsustainable borrowing during the first decade of the century, compounded by the collapse in UK tax revenues following the banking crisis in 2008. The more recent fall in oil tax revenues has obviously complicated the fiscal equation Scotland might face in the immediate years following independence. But independence (which gives us the levers to boost growth) is the solution, not the problem.
How to boost growth? The era of neoliberal tax cuts and low interest rates is over, and anyway did little for Scotland. We have also spent too much time looking for magic bullets in the experience of other countries, rather than looking for a uniquely-Scottish growth path. We need to start by prioritising exports, because our domestic market is too small to keep us in the standard we aspire to while Scotland exports far less of GDP than other small industrial nations. That means funnelling more investment into export-oriented firms and creating a financial mechanism to do so. Indy Scotland will have to exist inside a global trading system but we may have to consider more state-funded enterprise if we are to reboot quickly enough.
Which brings us back to West of Shetland. The mineral resources are there. But let’s not repeat the mistakes made in the North Sea. West of Shetland should be developed and exploited by a state-owned Scottish energy company. That way we keep the profits as well as the taxes. And avoid those “made in London” deficits.