Independence raised at oil and gas strategy launch

28 March 2013
By Edd Gent
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A trio of ministers announced the launch of the Government's oil and gas strategy today

A trio of ministers announced the launch of the Government's oil and gas strategy today

The oil and gas industry will play a vital role in British energy needs for decades to come, a trio of ministers has pledged.

Three Liberal Democrat secretaries of state were in Aberdeen, known as the oil capital of Europe, to set out their long-term strategy, offering to encourage investment, boost supply chains and promote exports.

They also used the opportunity to intervene in the Scottish independence debate, telling business leaders that the UK Government is best able to support them as an independent Scotland would be too reliant on offshore revenue and less able to weather any "shocks", they said.

Energy Secretary Ed Davey, appearing with Business Secretary Vince Cable and Scottish Secretary Michael Moore, said the industry will play a huge role despite efforts to promote cleaner fuels and decarbonisation.

"The primary products, oil and gas, on all estimations will remain an integral part of the mix for many decades to come," he told an invited audience which included industry leaders and local politicians.

The trio said they want to maximise economic production, noting that oil and gas will make up 70 per cent of British energy needs into the 2040s, and that a new cross-party group of MPs will start to work with the industry in an attempt to guide the Government's work.

Dealing with Scottish independence, Davey said: "Only the UK can deliver what is required over a sustained period if you are going to get the most out of the oil and gas industry. The UK is a large economy, that is why we can provide the support.

Smaller economies have difficulty absorbing the costs. The size of the UK economy can really create the framework and certainty."

Mr Cable, who earlier previously announced that a £7m "extreme" engineering centre for subsea and offshore engineering will be set up in Newcastle, underlined the pivotal role oil revenues are playing in the debate about the future of the UK.

The industry "shouldn't feel taken for granted by the UK Government", he told the business representatives which included firms such as Shell as well as emerging companies.

"A bigger country is better at absorbing shocks; it's simple logic. A modest change has a significant impact on GDP. In a country 10 times smaller, the shock would be proportionally bigger. We need to remember that when we're debating this sensitive issue," he said.

And while pledging closer involvement from the Government, Cable also promised to "back off" if the industry finds it unhelpful.

The Business Secretary said: "I want us to consider what barriers are stopping British companies bidding for and winning work in the North Sea. This is an expanding industry. We can either help create more jobs and opportunities across the UK if we get this right, or see work going overseas if not."

Despite the opening speeches with a clear message against Scottish independence, the industry representatives were more interested in the oil and gas strategy, asking for detail on how exports can be supported, why ambitions for revenue are not higher and for closer ties between renewables and fossil fuels.

Malcolm Webb, chief executive of industry body Oil and Gas UK, later said: "Close engagement with the UK Government and the resulting tax changes last year to promote investment in the oil and gas sector are now bearing fruit.

"Record investment is forecast this year to search for and produce UK oil and gas reserves. This will be followed by an upturn in production from 2014, sustaining growth across the supply chain and reinforcing the industry's already significant contribution to the UK economy."

The upturn is predicted for the year of the referendum on Scottish independence and the Scottish Government says the country can look forward to an oil boom. But opponents warn against over-reliance on a volatile resource, prone to fluctuations in revenue.

Scottish Government predictions say its geographic share of oil tax revenue could be as high as £11.8bn by 2017-18, generating between £41bn and £57bn in the six years to that point.

The independent Office for Budget Responsibility (OBR) estimates that revenue will amount to about £33bn by 2017-18, which leaves a gap of about £8.5bn between the OBR's revised figure and the Scottish Government's least optimistic estimate.

Mr Webb said industry body Oil and Gas UK is neutral in the debate.

"The issue of energy security is not just an issue for Scotland, it's an issue for the whole of the British Isles," he said.

"What is important is that this industry doesn't become a political football between the two sides. But I don't see too many signs of that, I really don't. As far as Oil and Gas UK is concerned, we're absolutely adamant on this. It is a matter for the Scottish electorate to decide. That's the democratic process. Whatever the decision is, we'll live with it."

Scottish Energy Minister Fergus Ewing welcomed the UK Government view that the industry has a long-term future.

"I am pleased that the UK Government highlights the positive future of the industry for years to come, the extent of reserves and the benefit to the balance of payments, and production taxes," he said.

"Scotland is a world leader in the oil and gas sector. As the UK Government point out in their strategy, up to 24 billion barrels of oil reserves remain, meaning that more than half of the value of the North Sea's oil and gas reserves are yet to be extracted, with a potential wholesale value of £1.5 trillion.

"As the UK strategy highlights, oil and gas will remain an enormous economic resource for decades to come. I also welcome the report's recognition of Aberdeen as the oil and gas capital of Europe.

"Scotland's oil and gas strategy, developed in conjunction with industry, lays out a plan to help the industry go from strength to strength. And rising capital investment, predicting that investment should rise from £11.4bn in 2012 to over £13bn in 2013, clearly demonstrates the confidence investors and the industry have in Scotland.

"The Scottish Government has already launched its industry-led oil and gas strategy and is implementing a range of measures to support the industry in this time of major investment. We welcome the UK Government's commitment to work with the Scottish Government in implementing its strategy."

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