In which direction does the oil flow?

The tax take from the oil and gas industries plays a major role in the economic forecasts from both sides of the debate.

Here experts and political commentators share their views.

Oil significance not clear to Scots

by Stuart Darling, Services director for ION Concept Systems, which provides software solutions for the oil industry, but is writing in a personal capacity

Scotland plays host to one of the world’s most technologically advanced industries, but the national awareness of the oil and gas sector is disappointing. When production started in the 1970s, the UK Government realised the significance of oil and gas to the independence debate, commissioning the McCrone Report. Instead of publicly announcing the key outcomes of the potential for an independent Scotland, successive UK Governments opted to undermine the significance of the sector in their efforts to stem the support for independence.

Oil and gas is the UK’s single largest industrial investor with one third of all UK industrial investment. However, until Scotland receives full independence it seems inevitable the significance of the sector will not be made clear to Scottish society.

UN law makes it clear that Scotland will take on ownership of her geographical share of oil and gas, 90% of current UK production.

Regulations in the UK dictate that “a fundamental principle of the decommissioning regime is that a person who is responsible for developing or operating an offshore installation/pipeline should also be responsible for decommissioning at the end of its useful life”. While decommissioning costs are large, they are dwarfed when set in context alongside private industry’s capital investment in exploration and production, or indeed alongside corporate taxes paid to the UK Government.

The sector continues to innovate to expand the lifespan of offshore production. The North Sea still has decades of potential, where exploration continues to have significant global focus. Expanding exploration and production at the Atlantic margin provides an exciting possibility for significant growth.

A Yes vote is the better choice for delivering the societal and economic benefits that can be associated with the sector’s future in Scotland.

Revenue flux a big fear for Scotland

by Alice Enders, Economist with Enders Analysis and former senior economist at World Trade Organisation

The UK and Scottish Government paint wildly different outcomes when it comes to the tax take from oil and gas revenues for 2016/17. The independent Office for Budget Responsibility (OBR) predicts fiscal revenues of £3.2bn, while the Scottish Government has a range of £6.2bn to £7.8bn.

Why such a big gap? Well, the SNP administration’s core assumption is that overall production rises by 14% from 1.5 million barrels of oil equivalent per day to 1.7 million in 2018 based on figures from the industry’s trade body, Oil and Gas UK.

The Scottish Government also predicts benchmark Brent crude prices could rise, despite this price having averaged $110/barrel since April, 2011. By contrast, the UK Government predicts more stable output and price trends, based on the recent past.

It is worth pointing out that Oil & Gas UK warns that these UK and Scottish Government projections “demonstrate the inherent uncertainties in predicting that future”. Last year we saw oil and gas output down 8.8% due to a continuation of the decline since peak oil in 1999 as well as maintenance and unplanned outages at several oil and gas fields.

The tax take from oil and gas fields is central to the Yes campaign’s promises on public expenditure, currently 11% higher per head than the UK average. Undoubtedly, the sharp decline in tax revenues in 2013 would have been hard to manage if Scotland was independent right now and is likely to have resulted in spending cuts or higher taxes. But the crucial problem for an independent Scotland’s oil and gas fiscal revenues lies elsewhere. North Sea oil and gas production may be sustainable for years but the maturity of the North Sea, exploited since 1980, means the big fields have been discovered and exploited and only smaller fields are left.

Increased incentives to explore or produce inevitably chips away at the potential tax take of the Scottish Government.

UK offers a safe platform

by Ed Davey, MP, Secretary of State for Energy and Climate Change

The oil and gas industry continues to be a true United Kingdom success story. It supports 450,000 jobs across the UK, and in 2012/13 added £6.5bn to the Treasury’s coffers. It’s vital to our ‘home-grown’ energy mix boosting the UK’s energy security in 2012 the UK Continental Shelf (UKCS) provided 67% of the UK’s oil and 53% of its gas needs. The UKCS has already produced 42 billion barrels of oil, and there could be a further 12 to 24 billion barrels more. But to realise this prize it’s vital the UK continues to work together with the industry. Independence would risk the certainty that industry and investors currently enjoy.

A key question would of course be who owns the UKCS? Negotiations between an independent Scotland and the continuing UK would decide this, and if agreement couldn’t be reached it would be via international judgement. This could take years to resolve.

How would tax revenues from the UKCS change under independence? Scotland would lean far more heavily on this revenue source to support vital public services. The problem is it’s a volatile stream of income since devolution, revenue has fluctuated between £2bn and £12bn and a Norwegian-style oil fund would take a huge amount of time to build enough reserve to manage this. The UK provides support for decommissioning costs. An independent Scotland would have to contribute £3,800 per head more than ten times what is currently spread across the UK.

This is a crucial phase for Britain’s oil and gas industry. We have the right strategy to make sure Scotland and the whole of the UK gets the benefit, together.

Sector needs more stability

by Fergus Ewing MSP, Scottish Government Energy Minister

The oil and gas sector is an industry with a strong future. I understand the importance of stability and certainty for Scotland’s energy sector to continue to prosper. However, all too often, successive UK governments have either not understood that point or have chosen to ignore it bringing in sudden changes to oil taxation which have damaged investment and thus both taxation revenue and jobs. That’s the reason why the Scottish Government has made it clear that there are no plans to increase the overall tax burden on the industry and we will not change the fiscal regime without prior consultation.

It is essential the new oil and gas authority is set up without delay, in view of widespread industry concern about high costs of production and low levels of exploration. Our Independent Oil and Gas Expert Commission will report shortly and it is clear more incentives are required.

Around 24 billion barrels with a potential wholesale value of £1.5 trillion more than half of the resources in the North Sea by value are still to be extracted so it is clear the industry will make an important contribution to the Scottish economy for decades to come. With independence, we can follow Norway’s example and invest a proportion of our country’s oil and gas revenues into an energy fund, ensuring the benefits remain for future generations.

The sector also supports 225,000 jobs across Scotland. It is only with the powers of independence that we can guarantee that Scotland’s oil wealth is no longer squandered by the London Treasury and that we can provide certainty to the industry that there will be no more sudden and damaging shocks to oil and gas taxation.