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In September, the voters of Scotland affirmed their continued membership in the United Kingdom. The outcome of the referendum was never seriously in doubt. A rogue poll in the last couple of weeks showed the “Yes” faction (for secession from the UK) squeaking by with just a smidgeon of votes, but there weren’t many outside observers who were willing to bet that Scotland would really leave. (“Smidgeon” is a Scottish word, by the way.)
Heady nationalism is a big part of the independence push. In the angry words of a very old song (usually attributed to Robert Burns):
The English steel we could distain,
Secure in valour’s station
But English gold has been our bane—
Sic a parcel of rogues in a nation!
The “parcel of rogues” refers to members of the Scottish parliament who—allegedly greased by the English crown—voted for the Act of Union in 1707. Today, the arguments on both sides of the question usually center around economics, and especially North Sea crude oil, which is the most valuable commodity produced in the UK. Substitute the word “oil” for “gold” in the above ditty.
The gold is black. Oil is money, which is as important to the debate as reflexive patriotism. The argument goes back decades. In the 1970s, the Scottish National Party promoted independence with the slogan, “It’s Scotland’s Oil.” This claim stems from The Continental Shelf Act of 1964, which designates the UK North Sea, north of latitude 55° north, as being under Scottish jurisdiction. In practice, this would mean that 90% of UK oil resources are under Scottish control.
First Minister (soon former First Minister) Alex Salmond, who has made Scottish independence his political life’s work, made it clear he believed a vote for independence was a vote for future prosperity. As he said in a statement a few days before the referendum, “The people of Scotland are not going to be bullied out of their opportunity to create a more prosperous country and also a fairer society.” Salmond had said many times that Scotland would benefit from the £1.5 trillion in revenues that that would be gleaned from the Scottish portion of North Sea oil and gas blocks.
The above figure is based on estimated recoverable reserves of 24 Bboe, a figure that has been frequently cited by trade association Oil & Gas UK. Malcolm Webb, the association’s chief executive, has even said that he believes the 24-Bboe figure to be an “underestimate.”
The Norwegian way. Supporters of independence have often criticized Westminster’s handling of the economy, specifically of the oil-and-gas sector. They give Norway as an example of the right way to do things. That country has used its oil revenues to establish an oil fund, the GPF, now worth about $893 billion, the largest, single “sovereign wealth fund” in the world. The fund acts as a hedge against the vagaries of oil price and geopolitical turmoil. Also, Norwegian oil policies are developed in a coordinated manner involving industry groups, government and academia. An example of this is the “O&G21” strategy for “development of drilling and well intervention technology that meets the strategic needs for Norway.”
The Scottish government’s Fiscal Commission Working Group estimated that if an independent Scotland had invested the net fiscal surpluses it would have theoretically received since 1980, it would have accumulated assets equivalent to 62%–84% of GDP. Going forward, the nationalists envision a GPF of their own, funded by the revenues they would then get to keep.
How much left-behind oil is left behind? With the independence question settled for now, the main point may be moot, but the underlying assumptions are important. How many producible barrels remain in the UK North Sea? On this subject, the two sides are as far apart as the question of sovereignty, itself.
The pro-independence trade organization, N-56 (named for the latitude), refers to a “widely accepted” figure of 15–24 Bboe, then consistently bases its projections on the higher number. The reasoning is something like this: Since the stated goal of Norway’s O&G21 strategy is to increase the recovery rate of oil reserves from 46% to 60%, a similar improvement in the UKCS would boost total remaining reserves upward, toward the higher number. It assumes that a number of smaller fields will become economic, including shale fields, and that new technology will help exploit them. A lot of other factors contribute to the mix, including costs of development and decommissioning, expected ROIs (which depend on future oil prices) and a non-punitive, stable tax regime. There are a LOT of unknowns here.
Cold water. Just before the vote, Edinburgh-based Wood Mackenzie acted as either spoilsport or realty-checker, when it released a projection that North Sea production would rise between now and 2018, from 1.43 MMboed to 1.46 MMboed, but then decline, falling below 1.0 MMboed after 2023. The ever-blunt Sir Ian Wood said in a statement, “be aware that by the time [today’s youth] are in their forties, Scotland will have little offshore oil and gas production, and this will severely hit our economy, jobs and public services.”
Petroleum economist Prof. Alex Kemp (a World Oil editorial advisor) has been more optimistic, but agrees that technology will have to play a big part. “The [offshore] industry has been slow to introduce enhanced oil recovery schemes,” he told a Russian news service, but he predicted that EOR techniques will be utilized much more going forward. “That could see worthwhile increase in the reserves that are viable,” he said.
Even though Scotland won’t be going it alone, all sides agree on some basics: More investment, better cooperation between industry and government, predictable taxes, sovereign wealth funds. Plenty of gold for everyone, at least for now. What matters is how it is spent. 
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