In a few weeks’ time, the oil in the North Sea could suddenly be under the sovereignty of a new country.
Scotland is pushing for a referendum on independence from the United Kingdom, and the September 18 vote is quickly approaching. The nationalists hope to build an independent country on the back of North Sea oil, which they say will help them fund schools, infrastructure, and healthcare. Currently, as a member of the UK, revenues from North Sea oil production are collected by the British government in London. But, if Scotland becomes independent, around 90% of the oil in the North Sea will fall within Scottish territory.
Pro-independence nationalists claim that the tens of billions of dollars will bring economic growth to Scotland, and investment will halt the decline in production in the North Sea. How true is this? Can North Sea production be turned around? Let’s take a look at Scotland’s bid for independence and the role that the North Sea will play in it.
The North Sea has been the core of British oil and gas production for decades, accounting for more than 90% of the country’s output. So when talking about British oil production, we are really talking about offshore oil. Production temporarily peaked in the 1980’s, and after a brief recovery in the 1990’s, British oil production went into a sustained period of decline. In 2013, the UK only produced 820,000 barrels per day, a 62% decline from a decade earlier. From 2012 to 2013 alone, oil production declined by nearly 10%.
And there is no secret to the problem. The oil fields have matured and are in decline. Without major new discoveries, the oil industry is unable to replace lost production. In 2013, the UK hit a milestone – it became a net importer of petroleum products for the first time since 1984 as its fields continue to fizzle.
Moreover, as fields mature and production declines, the cost of extracting oil is heading in the other direction. According to The Economist, producing a barrel of oil in the North Sea is now five times more expensive than it was in 2002.
Scottish nationalists are trumpeting potential tax receipts from oil as a reason to push for independence. Critics of the nationalists say that they are relying on rosy projections. The oil industry generated 10.6 billion British pounds in revenues for the country in 2013. Scottish nationalists predict they will rake in 48 billion pounds over…