Maximising the return from oil & gas
Scotland’s oil and gas reserves are a premium advantage, offering an independent Scotland greater choices and chances to strengthen its diverse economy, Alex Salmond said today as he unveiled a key policy paper ahead of next year’s historic referendum.
‘Maximising the return from Oil & Gas in an independent Scotland’, developed alongside extensive discussion with industry experts, outlines the sector’s contribution to the economy and the substantial gains it offers to an independent Scotland. It sets out the Scottish Government’s commitment to provide long-term stability for the country’s world-leading offshore industry, including guaranteeing formal consultation on future changes and greater clarity on decommissioning tax relief.
The paper also highlights the impact of damaging decisions made by Westminster, including the failure to establish an oil fund and the uncertainty caused by numerous tax changes.
First Minister Alex Salmond said Scotland’s oil & gas reserves are a huge bonus which strengthen further the country’s diverse economy.
In the paper the Scottish Government makes clear it has no plans to increase the overall tax burden on the industry and commits to formal consultation before any changes are made to the fiscal regime.
An expert commission, chaired by leading industry figure Melfort Campbell, will be appointed next month to consider options for the implementation of the paper’s key principles for the future fiscal and regulatory regime – including how ministers’ commitment to formal consultation on future reforms could be given statutory basis.
Elsewhere the paper highlights that:
- There are around 24 billion barrels of recoverable oil & gas remaining in the North Sea with a potential wholesale value of up to £1.5 trillion. This means that more than half the value of North Sea oil is still to be extracted.
- Research by Professor Alex Kemp suggests that almost all oil production (98.8 per cent) and around 60 per cent of total gas production over the next three decades is expected to take place in Scottish waters.
- An independent Scotland could produce six times its domestic oil demand and three times the country’s domestic gas demand based on current production.
- Gross-domestic product (GDP) per person in Scotland increases from broadly the same level as the rest of the UK even without offshore oil activity to 118 per cent of the UK average when a geographic share of North Sea output is included. And while onshore tax receipts per person in Scotland are broadly in line with the rest of the UK, the inclusion of offshore revenues lifts Scottish tax receipts to £1,700 per person higher than across the UK.
- Tax receipts account for a smaller proportion of revenue than in a number of other major oil-producing nations, for example it accounts for 15 per cent of public sector receipts over the last decade in Scotland, compared to around 30 per cent in Norway.
- Around 200,000 people are employed directly or indirectly in the sector across Scotland, with record levels of field investment underway, significant growth expected in the next couple of years and total future investment in companies’ plans worth around £100 billion
The First Minister said: “Scotland has been blessed with unrivalled natural resources and communities around the country should benefit from them. Oil and gas revenues would offer a premium advantage for an independent Scotland – a tremendous bonus to boost any diverse modern economy.
“Almost all oil production and more than half of total gas production over the next three decades will take place in Scottish waters. And, of course, only through independence would Scotland receive the tax revenues from this production.
“This paper restates the Scottish Government commitment to establish an oil fund when the fiscal conditions allow. The decision by successive UK governments to spend all the oil revenues rather than investing them, represents a lost opportunity for Scotland. Norway established its oil fund in 1990, although it did not start transferring money into the fund until 1996. The fund is now worth £450 billion, equivalent to £90,000 per person in Norway, and is the largest Sovereign Wealth Fund in the world.”
The paper includes a Scottish Government commitment to assume responsibility for meeting the obligations stemming from tax relief associated with decommissioning costs – which represent less than 2.5 per cent of the wholesale value of future reserves.
Mr Salmond said:
“Stability and predictability will underpin the taxation and regulatory regime for oil & gas production in an independent Scotland. This is in contrast to the numerous substantial changes imposed by Westminster on the industry over the past decade, which have damaged both the industry and the Scottish economy.
“With more than half the total wholesale value of oil and gas reserves still to be extracted, record levels of field investment, and companies’ future plans worth around £100 billion, the sector in Scotland will continue to thrive for decades to come. With Westminster having squandered the opportunities of the first half, it’s up to us to make a better job of the second half.
“We will provide optimum conditions for the oil and gas industry to innovate and thrive in a globally-competitive environment. North-east Scotland is already a global hub for the industry, with many companies operating across other sectors such as engineering services, power generation and diversifying into areas such as offshore renewables, with Scottish firms increasingly active in oil and gas regions around the world.
“Clearly our world-leading offshore industry can provide long-term benefits to the economy of an independent Scotland. With the ability to tailor policies to national and regional priorities, and by maintaining our close working with the industry, we will ensure this valuable human and natural resource can strengthen Scotland’s economic fortunes and enhance the prosperity of the people of Scotland.”
Commenting on the paper, renowned oil economist Prof Alex Kemp said:
“I welcome this paper, and the contribution it makes to the debate. The high-level principles outlined provide a clear framework for the expert commission to consider some of the more detailed policies and mechanisms in an independent Scotland. The Scottish Government’s commitment to formal consultation with the industry in advance of any reforms will provide the reassurance and predictability that the sector requires.”