In 1965, gas was discovered in the North Sea for the first time and oil was found later. As one of the most active offshore industries in the world, Scotland’s North Sea oil and gas sector has created over 300,000 jobs in the United Kingdom.
The UK Government Is Responsible for Oil and Gas Annual Losses
According to the Government Expenditure and Revenue Scotland (GERS) report for 2019-2020, the term ‘North Sea’ refers to all offshore oil and gas activity which comes from three sources: petroleum revenue tax, corporation tax, and licence fees.
The Scottish Government believes that oil and gas are vital to Scotland and the government’s energy strategy which accounts for more than 90 per cent of the country’s primary energy since 2015.
Although, the UK Government is primarily responsible for the fiscal regime and regulation of the oil and gas industry and the Scottish Government is in charge of the skills and training policy for the industry.
How Much Did The 2019-20 Crisis Cost Scotland?
According to the GERS document, during the Covid-19 pandemic (2019-20), the oil price averaged at $61.4 per barrel which represents a 12 per cent decline from 70.1 per cent in the previous year.
“North Sea revenue is subject to annual fluctuations and is driven by a number of factors, including the oil price, the sterling dollar exchange rate, production, operating expenditure, capital investment, and the prevailing fiscal regime.” The report reads.
Oil prices were particularly unstable in 2019-20, with the daily price stretching at $74.9 and $14.9.
In 2019-20 the overall production of the North Sea declined, with annual gas production falling by 0.7 per cent and crude oil and natural gas falling by 1.8 per cent.
The GERS report also shows that Scotland’s net fiscal balance, including the North Sea revenues, declined by £15.1 billion, compared to a loss of £13.2bn in the previous year.
The total UK deficit was at 2.5 per cent of Gross Domestic Product (GDP), the North Sea revenues downfall equals to 8.6 per cent of GDP.
Scotland’s illustrative geographic share of the North Sea revenues also fell by £724m, 111 per cent of the UK’s 650 m revenues.
Scotland’s Share of North Sea Revenue; population and illustrative geographical share
According to the document, in the Office for National Statistics (ONS) Regional Accounts, the UK continental shelf is not assigned to specific geographic regions but is considered a separate region of the UK (the extra-regio territory). Intrinsically, an assumption as to Scotland’s share of the North Sea needs to be made in GERS.
GERS provide two estimation of Scotland’s share of North Sea revenue, as follows:
1. A population share
2. An illustrative geographical share
As for ‘Population Share’ the document said: “One interpretation of North Sea revenue is to view it as a non-identifiable UK revenue, in which case a population share may be apportioned to Scotland.”
And as for ‘Illustrative Geographical Share’: “An alternative approach is to apportion a geographical share of North Sea revenue to Scotland. In order to estimate this share, GERS uses the share reported in the ONS Country and Regional Public Sector Finances publication. The estimate is based on the median line principle as employed in 1999 to determine the boundary between Scotland and the rest of the UK for fishery demarcation purposes. Other alternatives are possible. Production, costs, and revenue are allocated on a field by field basis to either the rest of the UK or Scotland using this boundary.”
North Sea Oil and The Scottish Independence
The GERS figures function as an indicator of how Scotland would work outside of the UK and this issue has long been debated between pro-union and pro-independence Scots.
As ‘energy voice’ reports, Alexander Burnett, MSP for Aberdeenshire West and Scottish Conservative shadow energy minister said: “I don’t think the hit to oil and gas revenues will be a surprise to anyone. Last year the price of a barrel of oil was sitting at around $60, now it’s fallen to around $45.
“We’re waiting for the sector deal and, from what I understand, discussions are pretty positive, so that’s the main thing that will help to boost the North Sea industry.
“The GERS figures today just show the whole idea of separation based on oil being $100 or more a barrel, which is what people were suggesting at the time of the Scottish independence referendum in 2014, has just been scuttled. The reality is that these shocks to the North Sea sector will happen and the simple message that staying part of the UK is to the benefit of everyone in Scotland couldn’t be clearer today.”
Conversely, Scottish Finance Secretary Kate Forbes said she fears Scotland’s post-pandemic recovery could be hindered unless Holyrood is granted “additional financial powers”.
Forbes said: “The Scottish Government has responded swiftly to the challenges of COVID-19 and has worked hard to protect Scotland’s economy, providing over £2.3 billion of support to businesses.
“The public finances were already facing challenges this year due to the uncertainty caused by Brexit. We are now witnessing an unprecedented health and economic crisis. Countries across the world, including the UK, have increased borrowing to record levels and, as we emerge from the pandemic, high fiscal deficits will inevitably be one of the consequences.”
Scottish National Party Goes Green with the Support of the Youth
After five decades since the Scottish National Party (SNP) came into the political scene, Scotland is faced with an accelerating climate crisis and extensive redundancies in the carbon sector.
The SNP has begun to reconsider some things about fossil fuels.
Support for SNP surges and a second independence referendum is most likely to happen, and the young SNP supporters and activists are inspired to demand a Green New Deal to combat the climate change crisis.
At the SNP annual conference in 2019, First Minister Nicola Sturgeon presented herself as an international climate leader.
Sturgeon declared a climate emergency in the same conference and pledged that Scotland would live up to its promises in the fight against global warming.
Global environmental campaigners praised Sturgeon’s ambitious carbon reduction targets like Al Gore.
But there are some growing concerns that independent Scotland could not resist depending on North Sea oil.
In 2017, Nicola Sturgeon noted that the North Sea could contain almost 20 billion barrels of recoverable oil reserves.
First Minister said: “Our primary aim – and I want to underline and emphasis this – our primary aim is to maximise economic recovery of those reserves,
“The Scottish Government will continue to support the oil and gas sector as strongly as we possibly can.”
The SNP too is voicing its leader’s stance and still struggles to break it’s politically and economically deep-rooted ties with the North Sea oil sector.
The SNP’s left-wing has called on the party to put away its pledge to take maximum economic advantage of the North Sea oil sector, even at the cost of abandoning what remains of its non-renewable assets.