Category Archives: environment

Scotland’s oil the bigger picture

In the autumn of 1999 I gatecrashed a presentation by a newly hired Department of Trade And Industry recruit. I was working at the Department of Environment at the time so it was more of a sneaking under the rope than breaking through the door type of gate crashing. But, nevertheless, I was in the DTI offices on Victoria Street, without an invite but with bated breath to hear a presentation. A presentation about North Sea oil.

My desire to nip away from the office to hear a closed door presentation on some fossil fuel wasn’t my normal form however the DTI recruit was a close friend from University who was now proudly and authoritatively presenting to a room full of senior civil servants. And this I had to see!

Every young graduate has these moments when they see for the first time their drinking partner, flat mate, football colleague, magically, almost suddenly enter normal life and become a professional. It’s a sobering prism to look through for all young graduates.

For the bespectacled, pin stripped civil servants their questioning and worrying gaze was focussed on my friend’s wild claims that the price of a barrel of crude oil would, in the near future, rise above $25. “Poppycock” someone probably said. Despite the content being clearly derided the presentation was politely applauded by the pinstripes and all too vigorously by the supportive gatecrashing mate.

How things have changed. In April 2011 the average price of oil reached $102 a barrel and that DTI recruit is now a senior civil servant; pinstriped and bespectacled.

Placing our oil in context

With the temporary fall in oil prices to below $60 a barrel the media is reporting that the oil industry is in crisis. There are of course serious concerns for companies, regions, employees, and the UK exchequer (because remember all the revenue from Scottish oil ends up in London). However to focus only on this short term reduction is to miss the much bigger picture. The much bigger picture is something that the mainstream media all too often forgets especially when it relates to corporate subsidies. 

We need to take a measured response to the “crisis” for the UK oil industry and not support the calls from corporations, government and trade unions (which is exceptionally peculiar), to cut taxes for this mature and untimely harmful industry. To call it a crisis and to focus on oil company subsidies as the answer is to ignore three exceptionally important pieces of background: the so called wider picture.

1. Where has all the money gone?

The billions of pounds which poured, slopped and dripped into company accounts and the Treasury coffers were a total boon, unknown and unplanned before the mid 1970s.

According to the ONS, since 1980 £177 billion has been sucked from the coast around the Scottish mainland and its Isles into the UK Treasury. You can guess at a higher figure earned by Oil Companies in the same period. So, let’s say £500 billion in thirty years or so. The Oil Industry and the UK Exchequer has seen a quite unimaginable boom in the profits from oil in the North Sea and from that they should have built a lot of cash reserves!

The job of any enterprise and for any government is to plan properly. The good times will come but surer than that so will the bad. Therefore the job of any organisation in the private sector or in the public sector is to be prepared. This is especially so when dealing with a product where the price can fluctuate drastically.

Before we continue to demand subsidies for oil companies we should be asking:

– what exactly have they been doing during the peak years to support a not unexpected downturn?

We should be asking our politicians:

– is our duty to start to subsidise companies in the lean years?

– is this the free market which they speak of?

We should be asking these questions before reducing their level of tax. However we are already too late as this years autumn statement chopped 2p off the level of tax oil companies have to pay. Again, let’s put this into context: this moves £470m over the next parliament from me and you to oil companies. This is on top of their current subsidy, which The UK Environmental Audit Committee claims is £12 billion a year from the UK Government: a massive corporate subsidy to an industry that has earned hundreds of billions exploiting our natural resources in the past few decades.

So typically with any bump in the road our government’s first response is to subsidise international corporations rather than to demand that they manage their affairs properly.

Oh, only to be Norwegian! Their Oil Fund has grown to a massive $850 billion. Currently this money is sitting, growing in a fund and not being used to pay for anything. However it is inconceivable that the fund would not be used to plug a hole in Norway’s finances should a drop in oil revenues continue and start to drastically affect the population. What has the UK Government done with our money? Where is the long term planning? Where is the buffer? Where is the investment from this boon?

These are the questions we should be asking not how much more subsidy do billion dollar profit companies require?

Both private businesses and the UK Government have failed to property and prudentially manage the money from our seas. I for one do not want to prop up an industry that has managed its finances so badly. No more tax cuts. They incentivise only one thing: more state sponsored miss management of our resources.

2. The oil industry is not a structurally sound industry

“Scotland and the Carbon Bubble” a report by Scottish Environmental LINK was launched in December and focuses on the preparedness of sectors of the economy, government and society should the Carbon Bubble burst. The Carbon Bubble is the reality that no more than 1/3rd of known fossil fuel reserves can be burned before we face a climate catastrophe.

There is a strong possibility that not all of the fossil fuels that the UK has access to will be burned. These ‘stranded assists’ will be left in the ground and oil companies and countries who will be expecting to earn from them will never see them realised. The financial impact of this reality for employees, regions, companies, pension funds and countries would simply dwarf this current “crisis”: picture that as big as the North Sea and this one no more than a puddle.

Scotland is of course especially susceptible to the financial impact of a carbon bubble. Our reliance on oil as an important industry is similar to our love affair with financial services. We must take this opportunity to properly diversify from fossil fuels. We have to learn the lessons from the financial crash that we can not rely on the speculative nature of certain industries to underpin our future.

3. The oil industry is not an environmentally sound industry

It was announced this month that renewables had for the first time become Scotland’s largest source of power demonstrating that our need for fossil fuels is reducing. We now have viable, secure and powerful alternatives to fossil fuels. We now have alternative clean industries for our jobs, pensions funds, regions, companies and our country.

The context of the environmental impact of more drilling, more exploration, more production and more consumption of oil scarcely receives a mention in any coverage of the oil industry. The social costs of the industry are made invisible by the main stream media. And that not only blinds the general population but it also dazes politicians.

Within the forty or so pages of the LINK Carbon Bubble Report one paragraph stood out. It was the response from the “Economy, Energy and Tourism Committee” of the Scottish Parliament. Their spokesman said that the committee was not aware of the concept of the Carbon Bubble and they did not know if it presented a risk to Scotland. No matter what you think of the likelihood of a bubble, does that sound like a country in which the full facts and opinions are openly discussed?

Before we look forward lets head back to 1998 and picture the disbelief and pleasure at the rise and rise of oil prices on the faces of those DTI officials. Imagine the glee as the revenues for the UK Treasury from North Sea oil rose and rose breaking the £100billion barrier during the Blair Government. Mirrored of course by a bigger rise in profits for oil companies.

Those billions of pounds poured, slopped and dripped into company accounts and the treasury. The dirty money swelled the coffers as a dirty and structurally unsound industry spent instead of saved.

That is the UK’s past but continuing on this path does not need to the Scotland’s future.