By Martin Kelly
A new claim by a UK Government minister that referendum uncertainly is harming investment in the oil and gas sector has been undermined by new figures showing confidence in the sector rising.
UK Energy Minister Michael Fallon told an audience of oil and gas executives at an event at Chatham House that referendum uncertainty was already hitting investment in the sector.
He said: “There is a risk that investment we’re trying to encourage will now be paused … that’s a very big worry”.
He added: “It raises the question of how an independent Scotland would possibly be able to afford the scale of decommissioning tax relief which is only sustainable given the scale of the UK . . . public finances,”
Last week Mr Fallon announced the opening of the latest round of oil and gas licences London hopes will lead to a similar boom seen in the sector last year. The UK Government approved 36 new projects last year which resulted in £14bn of new investment.
However, the latest attack on independence was undermined almost immediately with news that consultancy firm Wood Mackenzie has forecast 14 new fields, with the capacity to produce 438 million barrels of oil equivalent, will come on stream in 2014.
Claims by Mr Fallon that investment is being harmed by the referendum, comes despite the industry announcing record investment last year. The oil and gas sector is expected to continue investment as advances in technology makes reserves previously believed too costly to extract, more profitable.
In November last year, it emerged Scotland’s oil and gas sector has the potential to boost the economy by as much as £200bn over the next twenty years.
A report published by oil tycoon Sir Ian Wood concluded that a new regulatory body, based on those from neighbouring oil producing countries such as Norway, should be set up in order to boost collaboration and increase efficiency.
Sir Ian’s report estimated that the prize from increased and effective collaboration could be an additional 3-4 billion barrels of oil equivalent over 20 years, which could be worth £200 billion.
The former Head of the Wood Group said: “The evidence is clear. We need to strengthen the capacity and capability of our stewardship regime to enhance collaboration significantly across the North Sea if we are to meet the challenging demands of maturity and diversity and maximise the economic benefits for both the country and the industry.”
In 2011 investment in the sector was hit and thousands of jobs put in jeopardy when UK Chancellor George Osborne hit oil companies with an unexpected £2bn tax hike. Mr Osborne’s windfall tax was backed by the Office of Budget Responsibility who challenged claims from the industry that it would harm investment.
Commenting at the time, OBR head Robert Chote said: “We’re assuming that there’s no significant effect on the investment and production profile,”. Mr Chote’s colleague, Graham Parker, argued that companies would still press ahead with their plans.
However some companies shelved investment including Norwegian firm Statoil, which announced it had postponed £6bn worth of scheduled exploratory work.
Oil is set to become one of the key areas of the independence debate. The Scottish Government has insisted that oil is a bonus and that revenue can ultimately be used in order to create an oil fund that will help future generations.
According to the Scottish Government forecasts, there is approximately £1.5 trillion worth of oil and gas left in Scottish waters.
The estimate is challenged by the OBR, which insists that revenue from oil will begin to drop off at around the time Scotland achieves independence. The body, created by George Osborne in 2010, has issued a series of increasingly pessimistic forecasts on the amount of revenue a future independent Scottish government can expect from the sector.