By Martin Kelly
Scotland’s First Minister Alex Salmond has advised Danny Alexander to pay heed to the words of one of Scotland’s foremost experts on oil after the UK Treasury Minister called Scottish Government revenue estimates “fantastical”.
In a letter to the Lib Dem MP, Mr Salmond derided the UK coalition minister’s claims on North Sea Oil revenue and suggested he could benefit from listening to the words of Sir Donald Mackay who the First Minister said: “quite literally wrote the book on the political economy of North Sea oil,”
The letter is the latest in a series of exchanges between the two men and follows on from demands from the First Minister for the Lib Dem MP to apologise after recent claims made by the UK Treasury on the setup costs of independence turned out to be false.
It was a call Mr Salmond repeated in his latest communication in which he also called on Mr Alexander to apologise for downplaying the potential of North Sea oil to contribute to the economy.
“As you will be aware, the Scottish Government has published detailed forecasts for North Sea tax revenues in future years. These projections are based on robust assumptions.” The First Minister wrote.
He added: “They use industry expectations of future North Sea production and investment and the assumption that oil prices remain constant at $110 in cash terms, $18 per barrel lower than the central projection for 2018 used by DECC – a department of the Government of which you are a member.”
Challenging Mr Alexander’s claim that Scottish Government forecasts on oil were wrong, Mr Salmond added:
“As Sir Donald Mackay, Economic Adviser to the Secretary of State for Scotland for 25 years has concluded ‘there is no hole in the Scottish government’s oil predictions’. Moreover, Sir Donald has highlighted that ‘there is a mountain of black gold missing’ from your own figures.”
The First Minister had some words of advice for the Lib Dem MP, saying: “Given that Sir Donald quite literally wrote the book on the political economy of North Sea oil, when you were but three years old, perhaps you should acknowledge his expertise and authority in such matters rather than cite the OBR’s ability to forecast the next three decades when they have patently failed to forecast accurately the last three years.”
The reference to the OBR followed yet another downgrading of the estimated revenue from the North Sea by the body set up by UK Chancellor George Osborne.
Last week the body cut 25% from its own previous pessimistic forecasts for the oil and gas sector. The OBR now claims that total oil and gas receipts between 2013-14 and 2040-41 will amount to just £39.3bn – a massive £17bn less than it forecast last year and £22bn less than two years ago.
However, in his letter to Mr Alexander the First Minister wrote: “The Office for Budget Responsibility’s (OBR) long term forecasts rest on estimates of future production which are well below those used by the industry and leading independent experts.
“The OBR assume that 10 billion barrels of oil and gas will be extracted over the next 28 years. In comparison, Oil and Gas UK estimate that up to 24 billion barrels could still be recovered. The same estimate has been cited by Sir Ian Wood, in his review of the oil and gas industry, by Professor Alex Kemp, and in your own government’s Oil and Gas Industrial Strategy.
“Professor John Howell, Chair of Geology and Petroleum Geology at Aberdeen University, has estimated that there are upwards of 35 billion barrels of oil equivalent remaining in the North Sea and surrounding waters.”
Challenging claims from Unionist politicians that an independent Scotland would be over reliant on revenue from oil and gas, the First Minister said:
“North Sea oil is a bonus, not the basis, of an independent Scotland’s economy, and is a fantastic asset which will be around for many decades to come.”
Mr Salmond also countered claims from Mr Alexander that the UK Government was committed to supporting the oil and gas sector, saying:
“However, this is not reflected in your record at the HM Treasury. For example, in 2011 the UK Government sharply increased the supplementary charge paid by North Sea operators on their profits. It was widely reported that it was your idea to impose this tax hike on the industry – and indeed that you ‘boasted’ to business leaders that this deeply damaging tax grab was your own idea!
“Sir Ian Wood’s Final Report emphasised that ‘fiscal instability has been a significant factor in basin underperformance’ – a factor which you have directly contributed to. Malcolm Webb, of Oil & Gas UK, also reiterated this February that the industry is still ‘scarred’ by the experience.”
The First Minister then called for an apology from Mr Alexander over this and a recent misrepresentation of an academic’s work by the UK Treasury: “That is something for which you should apologise, just as you should apologise to Professor Patrick Dunleavy of the London School of Economics, whose work the Treasury recently misused in order to present a false picture of the finances of an independent Scotland – something that Professor Dunleavy has now described as your ‘dodgy dossier’.”
The First Minister concluded by highlighting previous correspondence between the two men in which Mr Salmond posed a number of questions to the UK Treasury Chief.
He said: “Your previous correspondence clearly implied that there will be a further £25 billion in cuts after the next UK General Election regardless of which party forms the next UK Government.
“I would be so grateful if you would reply to outstanding correspondence before sending any further letters. Indeed I may have to introduce a new rule – I will give you the courtesy of comprehensive replies to your correspondence when you offer any reply whatsoever to the key points made in mine.”