The North Sea Oil bonanza is coming to an end. The Chancellor is bent on squeezing every last drop from the oil shales beneath the sea floor, as are the Scots, who are hoping to attract new investment into the distinctly hostile environment of the seas around Shetland. Both could be in for a nasty shock.
North Sea oil and gas currently supplies about half of Britain’s needs. The Scottish Nationalists hope that the tax revenue generated (about £6 billion a year) will make an independent Scotland both viable and attractive to foreign investment. Unfortunately, production is on the slide, falling steadily year after year. The costs of extraction are rising and current investment is stagnant. The Shetland Islands seas are an extremely difficult environment to work in, and the oil deposits are relatively small and costly to bring on stream. Also, corporation tax, which has been raised since 2002, has choked new investment. The costs of decommissioning old oil wells has also made the industry think hard about future prospects in the North Sea.
Alec Salmond has promised a better deal for the industry and the creation of a national savings fund to smooth out the impact on the Scottish economy of boom and bust economic fluctuations, a policy which should have been adopted from the beginning. But an independent Scotland will inherit a large budget deficit making it difficult to start an energy fund for some years, unless the nationalists adopt a programme of severe cost cutting in public expenditure – something the independence party, quite understandably, do not want to talk about before September.
Britain also has problems, brought into sharp relief by our deteriorating relations with Russia. The loss of North Sea oil incomes increases our dependence on foreign suppliers, including those in politically volatile parts of the world. Over the economic life of the North Sea field we have tended to squander the earnings on rising unemployment payments and welfare (2008 – 2014). By contrast, Norway saved approximately $800 billion in roughly the same period from its own share of the region’s oil and gas.
Nor can we take much comfort from plans to exploit alternative sources of energy supply; nuclear power plants are only slowly being decommissioned, and new ones built are not yet on-stream. Fracking is massively contentious. None of this is a recipe for either a bright or warm tomorrow. If we do not make greater efforts to learn and study the problem, and those of a similar nature, the hard economic and environmental future that many predict will become the reality.