So you find oil and want to make life better for your people. It’s an asset that makes you fabulously wealthy and provides the sort of financial security that people normally can only dream of. But you get coerced and cajoled into giving it to your neighbour to look after on your behalf. The neighbour gives it to their banker friends who all enjoy lavish lifestyles at your expense.
Whenever you get fed up with how you’re being treated and begin to long for the good old days when you were free to do as you wished, the neighbour comes up with ridiculous ploys, scare-stories and scenarios to keep you where you are; each time becoming more ridiculous and farcical in order to keep control of your money and please their banker friends.
No, you’re not Scotland; you’re Jed Clampett from the Beverly Hillbillies, an American show from the 60s with a plot so ridiculous only backward yokels would fall for it.
In the show Jed was on a hunting expedition when he shot the ground and out came ‘a bubblin crude’. The OK Oil Company paid Jed a fortune to acquire the rights to drill, and Jed moved his family into a mansion next door to his banker in the wealthy Beverly Hills area of Los Angeles. Plots would frequently involve absurd efforts by the Clampetts’ banker to keep the family in Beverly Hills and their money in his bank.
Whenever Westminster discusses oil and gas production with the world it paints oil as a major boon to the UK, yet the image portrayed when its face is turned to the Scottish public is of a dangerously unreliable commodity that without the expertise and size of the UK would sink our small independent economy (you know, just like it’s done with Norway, Qatar and Kuwait).
Last year Tory MP Nicholas Soames (a grandson of wartime Prime Minister Winston Churchill), urged the UK government not to forget the “enormous” economic importance of North Sea oil and gas and to understand that irresponsible management could kill “a goose that lays a golden egg”.
Compare that analysis with the following from our very own ex-Chancellor Alistair Darling, discussing the positive case for staying in the Union:
“I do not argue that Scotland could not go it alone – that’s a silly argument. But we would be rather too dependent, for my liking, on North Sea oil. It’s worth between about 1%-2% of the UK’s GDP, but about 10%-20% of Scotland’s, and the trouble with oil is that it’s a tremendously volatile diminishing asset.”
Upon independence, the oil and gas within Scottish waters as defined under the United Nations Convention on the Law of the Sea III – the rulebook delineating maritime borders and the extent of the exclusive economic zone to which a country is eligible – will come under control of the Scottish Government.
This was made clear in the now-infamous McCrone Report, which asked:
“Can one be certain that the oil is without doubt a Scottish asset or, even if it is, that these substantial revenues and balance of payments advantages would indeed accrue to an independent Scotland?”
The answer was unequivocal:
“It is hard to see any conclusion other than to allow Scotland to have that part of the Continental Shelf which would have been hers if she had been independent all along … It must be concluded therefore that large revenues and balance of payments gains would indeed accrue to a Scottish Government in the event of independence”.
Further to this, analysis by Professor Alex Kemp of Aberdeen University estimates that, when Scotland’s share of the UK Continental Shelf (UKCS) is demarked using the median line, it accounts for 96% of UK oil production and 52% of gas production.
This results in Scotland having an estimated 78% of total UK hydrocarbon production. But this isn’t the end of the story. Scotland’s share of offshore tax revenue is far larger, due to the prevalence of oil production (which is more profitable than gas).
Scotland’s geographical share of oil and gas production is estimated to have generated £10.6 billion in tax revenue during the same period – or put another way, 94% of the UK total North Sea tax take.
We can see using the statistics for 2011 that:
UK oil production was 1,099,000 bbl/day, giving the UK a rank of #19 among oil-producing nations globally after Qatar, and above Colombia.
UK gas production was 47,430,000,000 cubic metres annually. This meant that the UK was ranked #17 largest gas producer globally, after the United Arab Emirates and above India .
The figures for an independent Scotland, based on 96% oil and 52% gas, would be:
Scottish oil production of 1,055,040 bbl/day, giving Scotland the rank of #19 among oil-producing nations globally, after Qatar and above Colombia.
Scottish gas production of 24,663,600,000 cubic metres annually, ranking Scotland the #28 largest gas producer globally, after Oman and above Brazil.
Independence would mean that Scotland – at 5.4 million people the 111th-largest country by population (between Slovakia and Finland) – would be in the world top 20 oil-producing and top 30 gas-producing nations, generating far more oil and gas than we use domestically and leading to a very significant balance of payments surplus.
For the rUK however, the story wouldn’t be as rosy:
rUK Oil Production of 43,960 bbl/day, giving a ranking of #67 for oil production, after Bolivia and above Papua New Guinea.
rUK Gas Production of 22,766,400,000 cubic metres, ranking the rUK as #30 for gas production, after Scotland and Brazil and above Kazakhstan.
But why does the UK care? After all, it wouldn’t be London’s problem any more, and if oil’s so volatile you’d think they’d be almost glad to be rid of it, with it only being 1% of the economy anyway. As it happened, George Kerevan – writing in the Scotsman this week about currency, not oil – may be able to offer a clue as to the reason.
“The present United Kingdom relies heavily on Scottish exports of oil, gas and whisky to generate foreign currency earnings. Even then, the UK runs a massive current account deficit – importing more than it exports, and borrowing internationally to cover the difference. In fact, this deficit is actually getting worse.
If Scotland retains sterling after independence, its foreign trade earnings will flow into the common pot (as they do at present) helping reduce the current account deficit. But the moment Scotland shifts to a separate currency that changes.
Instantly Scotland will start to run a trade surplus, boosting its currency and raising its international credit worthiness. That, all things being equal, will bring interest rates in Scotland down. But just the reverse happens in rUK.
The EU Commission forecasts that the present UK trade deficit will hit 4.4 per cent of GDP next year – the highest of any major industrial country. Take away the circa £50 billion annual export earnings from Scottish oil, gas and whisky and you will near double the trade deficit of rUK. It would climb from 4.4 per cent of GDP to a staggering 10 per cent.
Oh, right. Independence would be good news for Scotland, which would have the option of switching to a strong currency which would have a beneficial effect on both interest rates and the country’s credit rating, but losing North Sea oil would threaten a fiscal catastrophe for the UK – unless the UK agrees to the Sterling union that it keeps pretending it won’t. Now it makes sense.
In claiming that oil is actually a dangerous, volatile burden which the UK’s larger economy generously relieves us of, the UK government is treating Scots like a bunch of slack-jawed country bumpkins, in order to scare them into thinking they’d lose the pound. (Frightening them about oil revenue itself is just a welcome side-effect.)
It’s hard to blame them for that, of course – partly because of what’s at stake, but also because it’s worked for decades up until now. The result of the referendum will hinge on whether Scots swallow it again.
We’ll finish on a trivia fact: Paul Henning, the producer of The Beverly Hillbillies, was born and grew up in Independence, Missouri. We’re claiming that for an omen.