THE UK Government has “abandoned” the North Sea oil and gas sector despite there still being enough resources in the region to generate the same amount of revenue as it has in the past 45 years, according to two respected academics.
In a report highlighting the plight of the industry, Professors Peter Strachan and Alex Russell, both of Robert Gordon University, Aberdeen, said there were still 22 billion barrels of oil in the North Sea and full control of the Scottish sector should lie with the Scottish Government, so at least “this part can be saved”.
Speaking to The National, Strachan highlighted the risk of low prices, adding that the current practice of decommissioning assets such as oilfields and platforms could see the sector “collapse like a house of cards”.
He said: “What we should be doing is protecting assets ... When we get to the decommissioning stage it’s really the end of the game and it’s unlikely you’d ever see any return on the oil that’s left underground at that point.
“At $30 (£21) a barrel it is facing oblivion. It’s also important to stress to the UK Government that this industry needs urgent assistance so that once prices do rise there is an industry left for governments to exploit to achieve the full maximum economic return on past investments.”
Writing for the Energy Post website, the academics said attacks on the Saudi Arabia-led OPEC cartel of oil producers over decades for action that increased oil prices had been a “red herring”.
It said if there was a cartel controlling the price it was a US-Saudi Arabia alliance: “US production and stockpiling of oil has never been higher ... Arguably, the US/Saudi Arabia cartel has forced down the oil price to put economic pressure on their common adversary, Russia.”
The pair said that while factors such as the downturn in the Chinese and European economies had impacted oil prices, its root cause was “primarily US and Saudi over-production relative to demand” – an act of “economic and political genius” by the US: “When oil prices were high they milked rewards from their fast-depleting fracking plays and now that oil is scraping the bottom of the price barrel they have persuaded other countries to sell their oil at give-away prices. The US economy is booming as a consequence.”
They said the UK Government and the oil industry had reaped enormous direct tax income (£300bn) and profits from North Sea oil, and added: “There is enough oil and gas still in place in the Atlantic and the North Sea that can generate at least the same amount of income once oil prices rise.
“It is not a case of if oil prices will rise, but when. The economic fate of Scotland should not be imperilled by the mistaken and short-term decision making of the oil majors to merely get some payback from their proved reserves rather than take the longer-game stance of investing in retaining staff to continue to explore for new reserves ... Neither should it be imperilled by a UK Government that should be incentivising the industry by matching investment funds pound for pound and by agreeing to impose exactly the same taxation regime on the industry as on any other industry.
“In the absence of Westminster showing a willingness to help maximise economic recovery from the North Sea, full control of energy and oil within the Scottish section of the North Sea should be transferred to the Scottish Government, and tax receipts for economic activity taking place within Scotland should be part of the funding arrangements for Scotland.”
Strachan added that oil prices would return to $70 (£49) a barrel in three to four years, and it made sense for Holyrood to have control over the North Sea.
He said: “Take Fergus Ewing’s proposals last January, as we were entering into this crisis. He set out comprehensively the need for an exploration tax-credit system.
“That was something I backed at the time, but we’re now a year on still waiting for Westminster to act on a system the Norwegians implemented a number of years ago.”
A Government spokesperson said: “The oil and gas industry supports thousands of jobs and is an essential part of our plan to provide secure, reliable energy for hardworking families and businesses. That is why we announced a package of support worth £1.3bn to the sector, including reducing headline tax rates and introducing a new Investment Allowance to reward companies investing in the UK Continental Shelf. We also established the Oil and Gas Authority and recently set out our strategy to maximise the economic recovery through better collaboration between companies and improved cost-efficiency.”
Peter Strachan and Alex Russell: The fall of Brent - how did we get here?
The National View: It's vital that Holyrood takes control of North Sea oil and gas
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