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UK: Despite falling reserves, oil takes centre stage in Scottish independence debate

08 August 2014   (0 Comments)
Posted by: Author: Mark Hennessy
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Author: Mark Hennessy (The Irish Times)

North Sea riches will remain attractive to exploration industry, regardless of whether political authority lies in London or Edinburgh

Aberdeen in the northeast of Scotland, in the words of one oil executive who has experienced some of the toughest regions on earth, may not be the nicest part of the world, but it is the nicest part of the world that has oil.

In truth, the humour is a little hard on the location, which was ranked by the Lonely Planet two years ago as one of 10 cities in the world that never get the credit it deserves – though other visitors have often found it grim, soulless and obsessed about oil.

The humour reveals an important truth: the riches in the North Sea, even if they are past their peak, will remain attractive to the oil giants, regardless of whether political authority lies in London or Edinburgh.

Production in the North Sea peaked in 1999 when 4.57 million barrels of oil were extracted, compared with just 1.43 million barrels last year – though the oil and gas that is now being extracted is harder to find, and vastly more expensive to get out.

Significantly, tax revenues on North Sea production – a crucial element of the economic figures put forward by those advocating independence – have fallen dramatically: £6.6 billion last year, compared with £11.2 billion the year before.

Just as significantly, many of the platforms that have faced the North Sea’s often brutal conditions are ageing, requiring ever more work to keep them going, and often are only able to operate two-thirds of the time.

"There is more corrosion, more leaks. Production has had to be curtailed to deal with that,” says Alexander Kemp, professor of petroleum economics and the director of the Aberdeen Centre for Research in Energy, Economics and Finance.

Back in the 1970s, life was different. "I worked in Forties Bravo. You drilled, oil came out,” says councillor Barney Crockett, the former Labour leader of Aberdeen City Council. "I remember calculating that two days production covered all of the costs.”

Everybody accepts that North Sea production is falling, but there are disagreements about how much is still left out there. The British Department of Energy estimates that the reserves number between 11 and 21 billion barrels with "some potential” that they could be higher.

Oil and Gas UK, which represents the industry, officially puts the figure at between 14 and 24 billion barrels, but its chief executive, Malcolm Webb, believes it could be higher.

"Here is a personal view. Every forecast of the recoverable reserves of the North Sea to date has turned out to be a gross under-estimation. Nobody knows what is out there. People have got various models.

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