Oil numbers and the referendum
As we approach the final week of the Scottish independence referendum, claims and counterclaims come fast and furious – hard data and credible analysis is in shorter supply!
For example, an independence supporting firm claims there is a new oil bonanza in the North Sea through the use of fracking. The extra reserves could apparently yield an additional wholesale value of £1 trillion to £2 trillion depending on oil prices. However, Dr Gordon Hughes, professor of economics at the University of Edinburgh, dismissed the report as “pure guesswork”. He added: “The question, which this report largely ignores, is whether or not it is economic to develop them. This game of trying to calculate Scotland’s oil and gas reserves has become almost a pointless exercise.”
Estimates on oil reserves and oil prices have been a key battleground in the referendum campaign. The problem for voters is that no one can give them a credible estimate of either. The Scottish Government uses highly optimistic assumptions on oil prices and the UK, or the OBR, use more pessimistic assumptions. The difference between these numbers is what pays, or doesn’t, for our schools and hospitals. The irony is that both estimates have been proved to be optimistic in the past.
You would have thought oil reserves would be easier to calculate. After all it’s a measurable commodity unlike prices that can fluctuate. However, we have a range of different numbers for voters to pick from. Oil magnate Sir Ian Wood suggests that remaining oil and gas reserves are about 16 billion barrels oil equivalent (boe). While industry representative Oil and Gas UK suggest a figure of 24 billion boe. As Ewan Mearns discusses in some detail, both of these numbers as they stand alone are totally meaningless. It’s not physical reserves we should be concerned about, but those reserves that are economically viable to extract. He concludes by saying:
“The focus on ethereal reserves is a mistake, the focus on direct tax income is a mistake. The focus should be on the continued existence of a multi-billion £ industry that provides jobs and prosperity for many and a single minded focus on doing nothing that may jeopardise the present or the future.”
This shouldn’t be good news for Yes vote backers the Green Party and quite a few environmentalists. As Peter Jones mischievously put it in today’s Scotsman, “It is becoming increasingly clear that if there is to be a boost, or more realistically a maintenance, of living standards, Scotland will need to produce every last ounce of oil and gas. Yet if we do that, we will also be helping planet-wrecking climate change.”
While the latest polls have at least woken up the rest of the UK to the debate in Scotland, they at least don’t have to make this difficult decision based on limited credible data. As the author Carol Craig put it in a thoughtful essay today, “If the No side is Project Fear then, for the most part, Yes is Project Pollyanna”.
- Posted in: energy prices