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As the Scottish National Party (SNP) tries to build support for its plan to achieve independence and split from the UK, one of the important arguments that it makes is that Scottish oil reserves are worth £1.5 trillion, and that by voting for independence they would no longer have to share this wealth with the rest of the UK, turning Scotland into the sixth wealthiest economy in the world.
The figure of £1.5 trillion is repeated throughout the campaign for Scottish independence, by government officials, by First Minister Alex Salmond during press releases, speeches, and interviews, by the Finance Minister and the Energy Minister, and printed on Yes Scotland Leaflets.
Related article: A Vote for Independence will Threaten Scotland’s Green Energy Boom
Scottish officials arrived at the figure of £1.5 trillion based on an estimate of how much oil and gas remains in North Sea fields, (which they generously calculate to be around 24 billion barrels of oil equivalent), coupled with a price of $100 a barrel (it groups all hydrocarbon reserves together, ignoring the cheaper value of natural gas), and a Dollar to Sterling exchange rate that is now 18 months old.
During a radio interview in July, Alex Salmond stated that, “we accept the industry forecast of 24 billion barrels, some people say that's pretty low these days, we put forward a reasonable oil forecast of a $100 a barrel.
Now if you do these two things then what that tells you is the remaining value of the resource is £1.5tn. [To] put it into every day terms that £300,000 for every man, women and child in Scotland.”
Other than the fact that this is by far the most generous set of circumstances possible, the figure of £1.5 trillion is also highly unrealistic for several other reasons.
Never in their campaign does the SNP mention that the estimated 24 billion barrels does not represent Scotland’s geographical share of North Sea oil and gas reserves, but the reserves attributed to the entire UK.
When calculating the figure of 24 billion barrels, the analysts seemed to assume that such a level of production will be possible, despite maturing fields, a constant decline in current production, and geographically difficult locations of remaining fields. Oil & Gas UK, the governing body of the UK’s oil and gas industry, offered a more modest estimate of 15 billion barrels of oil equivalent to be extracted over the next 30 years.
Related article: If Scotland Separates from the UK, what Happens to the Oil?
The HM Treasury has recently published an analysis paper titled ‘Scotland Analysis: Macroeconomic and fiscal performance’, in which it states that the £1.5 trillion is misleading, and that the capital and operating costs of extracting the remaining oil and gas resources will be in the region of £1 trillion, making even Scotland’s generous scenario rather less profitable than thought.
In its paper ‘Monetary Valuation of UK Continental Shelf Oil & Gas Reserves’, the Office for National Statistics claims that since the 31st December 2011 the total value of untapped reserves in the UK’s North Sea fields is $120 billion, 12 times less than estimated by the Scottish government.
Then finally there is the fact that most of the income not reinvested in North Sea fields, is actually sent abroad to foreign investors.
By. James Burgess of Oilprice.com
James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…