Last night (10/12/2014) Alex Salmond was interviewed by the ineffectual Kirsty Wark on Newsnight. When asked about the price of oil dropping from his prediction of $150 a barrel to under $70 barrel he said it did not matter, even if this held for 40 years. He then said it was a resource of one thousand billion pounds, that his government share of this would be 20%. And that this was worth about £40,000 to everyone in Scotland.
At the very best this was prevarication and equivocation. And Kirsty did nothing to pull him up on it.
The simple fact that Salmond was choosing to ignore is that it costs a lot of money to extract oil from deep beneath the North Sea, this is called the upstream cost. If this cost is greater than the market price (as it often now is in the North Sea) then it COSTS money to extract it. Each barrel makes a loss. Simple business facts that Kirsty should know.
Let’s take a look at some real world FACTS:
- According to the highly respected Economist newspaper “the oil and gas is running out. Production fell by 6% a year on average between 1999 and 2010; since then it has dived by nearly 40%” and “it is nearly five times more expensive to extract a barrel of North Sea oil than it was in 2002. Investment in exploration, which once rose and fell with the oil price, is at rock bottom”.
- Also according to the Economist “nine billion barrels may remain unfound” which at $70 a barrel is $630 billion dollars, far short of Salmond’s boast. And we are talking about unproven reserves here. And the cost of extracting it may well be more than it is worth.
Alistair Carmichael, the Scottish Secretary, has said plummeting oil prices would have created a £12 billion shortfall in a separate Scotland’s budget, which is equivalent to all day-to-day health spending for the period 2016 to 2019.
- The Scottish Government (LOL), in their May 2014 bulletin forecast that total UK oil and gas receipts (90% in Scotland) will fall from £6.1 billion in 2012-13 to £3.5 billion by 2018-19 assuming oil prices fall from $109 in 2013-14 to $99 in 2018-19 (the reality is that they could be half that) and that oil and gas production remains broadly stable at approximately 1.4 million barrels per day between 2014-15 and 2018-19 (no chance). This whole report is an utter joke. Yet Salmond uses it to bamboozle people with.
- The oil companies are in so much trouble with the low prices that George Osborne has just given them £450 million. Effectively the English taxpayer bailing out the Scots once again.
- Many of Salmond’s figures come from the N56 report. However this is derided and ridiculed by industry experts, even at $120 a barrel. ” N56 provide a typical oil value per well of $20 million and describe drilling costs as £10 to £30 million per well, i.e. $16 to $48 million in costs per well. So let’s take a deep breath, their median cost is $32 million and revenues $20 million. What are these guys smoking?” for instance.
- The country with the world’s largest oil reserves is socialist Venezuela (20% of world total). Their oil is vastly cheaper to extract than Scottish oil. Yet their economy is in the toilet.
- World demand for oil is very low, yet production capability has increased rapidly with relatively low cost shale oil and sand tars coming on line, of which there are immense reserves. Even the mighty OPEC are having to compete just to try and keep market share.
- Jake Molloy, regional organiser of the RMT union in Aberdeen, said: “The offshore industry is facing what amounts to a perfect storm of a falling oil prices on global markets, the shale revolution, rising costs to extract oil and gas from the North Sea, and smaller and harder-to-access fields.”
- Use Google news and you will find many stories about North Sea oil industry redundancies, with 35,000 jobs set to go. With three related onshore jobs for each upstream job that is 140,00 upcoming redundancies in an industry that Salmond tells us is booming.
- The North Sea has immense decommissioning costs as old wells run dry and have to be removed. The cost for this is estimated at £30bn. This is written off against oil revenue so makes a huge hole in government income.
- Sir Ian Wood, founder of Scotland’s world-leading oil services firm Wood Group, has accused the SNP of misleading voters with “highly inaccurate forecasts, false promises and misleading information“. And that the SNP’s N-56 report, which claims there could be another 21million barrels of oil in unconventional shale reserves, “is an insult to the Scottish people”.
- Morgan Stanley are predicting an oil price of $43 a barrel. At this price the Scottish oil industry is finished.
As you can see I have provided links to all the evidence. It is blatantly obvious that the Scottish oil industry is unlikely to produce even a small fraction in government revenue of what Salmond claims. It is a fact that as a result an independent Scotland would be a very poor place indeed. Kirsty Wark’s failings made the interview look like an SNP party political broadcast as she failed to get the truth for the viewers. Scottish voters who believe Alex Salmond are obviously very deluded indeed, or severely cerebrally challenged. And it is no wonder that Alex Salmond lost the referendum, too many people can see right though him.
Also Newsnight need a much higher calibre of reporter.