Would the story of North Sea oil have been different in an independent Scotland?
The UK is pushing the sector into accelerated collapse - instead of a just transition
I was in Aberdeen this week. It is reeling from the UK budget. The evidence of human and capital flight is all around: battered “for sale” signs, “reduced” tags on estate agents’ windows, and once-grand offices abandoned. A sporting goods store with ski boots and jolly hats still in the window has closed down - hastily it appears.
The process started a decade ago with the downturn in the oil price that saw thousands lose their jobs. But last week, Chancellor Rachel Reeves pushed the industry over a financial cliff edge when she refused to reduce the whopping 78% windfall tax rate on North Sea profits – a rate put in place when oil prices were roughly double what they are now.
After hanging on for Reeves’ decision, the remaining multinational players are packing their investment dollars into their carpet bags and heading for the door. They have many places to put their money. Why would they do it here, on these terms?
According to a report in the Financial Times, £15 billion of investment is now at “very high risk” of being cancelled.
On the eve of the budget, Paul de Leeuw of the Energy Transition Unit at Robert Gordon University made a strong case for the UK to take a different course.
De Leeuw said: “I don’t speak for industry, I talk about industry. You need to make this base investable; therefore you need to change the regime as soon as you can, and that cannot wait.”
The UK is risking the potential to emulate what Norway and Denmark are achieving, he said. Their oil and gas reserves are supporting European energy resilience while they invest the profits from fossil fuels in accelerating to net zero.
Paul’s research shows the North East stands to lose one in six jobs. Projects are being cancelled. Skilled workers are being made redundant, taking early retirement or moving abroad – shrinking the talent pool.
This is not good for the renewables sector either - building that here depends on a strong energy ecosystem.
But Paul’s pleas, like many others, fell on deaf ears.
The buck stops with the UK government
The responsibility for this situation rests firmly with the UK Government. The Scottish Government’s dirty secret is that it is not really a government – it is a devolved administration. It does not control any of the big levers of power that could make a difference to this.
However, Holyrood could make more noise. Indivdidual poltiicians have spoken out but most round ups of the budget in the UK media didn’t even mention the North East.
People here feel that the outcry over the closure of the Grangemouth refinery and the Mossmorran gas plant is not matched by the same concern for them.
Half a century of plunder
Scotland’s oil and gas bounty was plundered. Go in hard and fast on a field and you get a flood of early production – and a flood of problems. Drive the pressure down too quickly, water breaks through too early, and you poison the reservoir. You squeeze out a short-lived peak at the cost of much lower total recovery.
That’s what happened across the Scottish sector, while Norway, with a more patient, state-directed model, took it slower and smarter. The Russians did the same, taking only a fraction of the available yield. These fields have much more left in reserve.
The UK Government didn’t start a sovereign wealth fund. It didn’t keep a serious state stake in production or retain a share of value in public hands. Instead, it opened the fields up to multinational operators who turned everything up to 11. They took out as much as they could, as fast as they could.
The UK Government pocketed the tax receipts and spent much of them on funding Margaret Thatcher’s assault on the trade unions and on the enormous welfare bills that followed the destruction of industrial jobs.
The same short-termism is now pushing the sector into a crash. The UK’s forecasting outfit, the OBR, says tax revenues from the basin will slump from almost £3 billion this year to a tenth of that within five years. For a supposedly growth-focused government, that seems like a strange choice.
As Erika Askeland put it on this Energy Voice podcast: “They are killing the golden goose and they don’t mind.”
There will still be some activity
Oil and gas won’t come to a dead stop of course - despite sticking with a manifesto commitment to no new oil and gas exploration, the budget did create a new “tie-back” licence. That will allow firms to expand into new areas if they can do it by making use of existing infrastructure.
Mergers and acquisitions are marrying profitable entities to encumbered ones. The resulting companies are tailored to the UK regime in a way that means they make less money and pay less tax.
But the collapse is real and it is not what was promised. We were supposed to get a planned transition to green power.
We saw what happened in the 80s when heavy industry went to the wall - workers, their families and whole communities were broken and thrown on the scrapheap. That was not supposed to happen this time.
The just transition that never arrived
Renewables don’t need to be in Aberdeen, because they don’t send lots of people offshore. They would have to be attracted by a hub of talent, capital and decision-makers.
Three years ago, the RGU’s Energy Transition Unit warned that this would not happen by itself. It would need serious investment. The price tag then was £18 billion, about what was spent on Crosstail. No such investment has ever materialised.
For a while, the Acorn carbon capture scheme looked like a way to keep high-quality jobs in the region and repurpose skills. Now even that one bright spot in the jobs market is in jeopardy, according to The Herald. That and a carbon capture plan at Peterhead are still in the queue for UK funding - behind English sites, despite the area’s status as a European oil hub in need of a transition strategy.
And GB Energy, Labour’s pre election promise to Scotland, employs just 13 people in the North East.
There are a few things in the offing - some money from the Scottish government Jut Transition Fund and a pitifully small sum for Aberdeen’s Energy Transition Zone from the UK.
But even the Port of Aberdeen – Britain’s oldest continuously operating business – is now cutting jobs after a 25% collapse in summer offshore activity. It was supposed to be at the heart of the new ecosystem. Meanwhile Ireland is investing in the first floating off-shore wind port at Shannon.
Would things have been different in an independent Scotland?
The independence movement always goes back to the McCrone Report – a 1974 Scottish Office paper which concluded that an oil-rich independent Scotland could run a ‘chronic surplus to a quite embarrassing degree’.
The report remained confidential until it was released under Freedom of Information laws in 2005, and members of that 1970s Labour government have admitted “underplaying” this in case it boosted support for independence.
Was that part of the reason Westminster chose to approach the basin in such a reckless, extractive way – get it out fast, bank the cash, don’t worry about the long term?
We can’t know for sure. We do know that Aberdeen and the North East have never had much electoral clout in the UK. They have half a dozen seats at Westminster, and none of them are Labour.
A small example of this is that when the London media says the North East they mean - of England. They talk about ‘Aberdeen’ as if the oil story stops at the city boundary, forgetting Peterhead and the giant gas terminal at St Fergus, the power station and service base at the harbour, and the ports like Fraserburgh, Buckie and Macduff along the Buchan and Moray coasts that have kept the North Sea basin running for decades.
The accelerated collapse of oil and gas will reduce Scotland’s GDP by a significant amount - making Scotland look even more too poor, too wee and too tired to go it alone.
Scots look over at their northern neighbour with envy. Norway’s £1.3 trillion wealth fund is the biggest in the world - and Scotland’s would have been slightly bigger. Norway’s oil and gas industry is state-owned, whilst the UK’s is privatised. Norway views petroleum resources as belonging to the people of Norway as a whole, with the Norwegian state securing a large share of the value creation. Their approach also allows them to manage the workforce - they have not lost nearly as many jobs during the downturns.
We also know that the desire to have more control over their resources was a key reason for Norway’s decision to become independent.
I would like to hope that with 20:20 hindsight, our great lords and masters would have set up a sovereign wealth fund and that we would now be reaping the rewards of such vision, but I truly doubt it
Thanks, Jackie. That needed saying....