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Meeting of the Parliament 09 January 2013

09 Jan 2013 · S4 · Meeting of the Parliament

Item of business

Oil and Gas Sector

Scanlon, Mary Con Highlands and Islands Watch on SPTV

I thank the minister, Fergus Ewing, for his measured approach and commend him for his positive and constructive partnership with the Westminster Government. I am sure that the industry, too, will welcome that approach.

I was pleased to hear what Rhoda Grant said, and I support her amendment. However, I noted from the Oil & Gas UK briefing that the safety record in the North Sea is better than that of the retail industry. Therefore, I question some of the points that have been raised.

We are pleased to participate in this debate on oil and gas, and I confirm at the outset that we will support the Government’s motion and the Liberal and Labour amendments. I will leave my very capable colleague Alex Johnstone to deal with the Green amendment. That pleasure is all his.

Given that 200,000 people are employed in the oil and gas industry and that it contributes £32 billion to the United Kingdom balance of payments, it is only right that the Parliament acknowledges and values the excellent work of the sector. As a member for the Highlands and Islands, I acknowledge the sterling work that is being done at the Nigg Skills Academy.

I am old enough to remember when the oil industry started in the north-east. In the late 1960s and early 1970s, the predictions were that we would be extracting oil from the North Sea for about 25 to 30 years. We are now 40 years on and we will still be taking oil and gas from the North Sea for some time to come. As Tavish Scott said, we have platforms that were built for the initial period and whose lifetime has been significantly extended. As other members have said, there have been many changes over the period. Technology has changed out of all recognition—for example, we now have horizontal drilling. In 1972, the price of oil was $3.50 a barrel, or around $18 in current prices, compared to today’s price of $111 for Brent crude.

I want to highlight some recent estimates relating to oil and gas in the North Sea. Revenues are undoubtedly difficult to predict because of erratic prices and levels of production. There have been significant recent outages, including the Elgin leak, which has resulted in production falling by more than 12 per cent. According to the centre for public policy for regions, the cumulative fall in production since 1999, which was the peak year, is now well over 60 per cent. The Office for Budget Responsibility’s North Sea tax revenue forecasts for the period post 2011-12 have almost halved in the past 18 months, although higher capital investment should help to extend production in future years.

Gas production is set to be 13.7 billion therms in 2017-18, which is a fall of 46 per cent from the 25.5 billion therms that was achieved in 2008-09. Oil and gas projections from the Treasury budget and the autumn statement clearly signal a gradual decline in total tax revenues from 2013 onwards. As a result, the current forecast for North Sea tax revenue from 2012 to 2016 is half the level that was forecast 18 months ago.

Along with the CPPR research and predictions, the work of Professor Alex Kemp at the University of Aberdeen highlights the erratic and unpredictable nature of North Sea oil and gas production. In a recent paper, he highlights the comparison between the peak of revenues of £28 billion in 1984-85 with the low of £1 billion in 1992. In the past 20 years, the average has been about £6 billion per annum. Professor Kemp estimates that there are between 11 billion and 35 billion potential barrels of oil remaining and that future tax revenues in the next decade will be about £5 billion to £10 billion per year. Of course, the £34 billion investment for decommissioning must be brought into the equation, in terms of capital infrastructure and jobs.

It is important to emphasise the figures that leading economists and research organisations have given, particularly in the lead-up to the referendum, when people across Scotland are looking for accurate figures on which to base their decisions. In February last year, the First Minister stated that there were 24 billion barrels of oil left in the North Sea—most people would agree—which he said were worth more than £1 trillion. This month, he stayed with the figure of 24 billion barrels of oil, but the value has now risen to £1.5 trillion, which is a 50 per cent increase in less than a year. I find that rather odd, given that the price of Brent crude in February last year was $121 and this month it is $111. The amount of oil in the North Sea still to be extracted remains the same and the price of oil falls by $10 a barrel over the 11-month period, yet the First Minister claims that last year’s £1 trillion-worth of oil is now worth £1.5 trillion.

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Meeting of the Parliament 09 January 2013

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