Salmond and Darling: who has it right on Scotland’s oil?
As everyone has commented, Alex Salmond and Alistair Darling really went at it in the debate last night, and fulminated at each other about North Sea oil, like everything.
But who was right about what?
Well, to establish neutrality, let’s take one statement by each that was palpably… let’s say balderdash.
Darling: “Looking ahead we have never extracted as much North Sea oil as people expect.”
In fact, most of the history of the North Sea province involves premature predictions of its demise. When oil was discovered in the ’60s it might last til the ’80s. By the time production started in the Seventies it was going to run out in the Nineties – when, in fact, it reached its production peak on the UK Continental Shelf of 2.8 million barrels a day, more than Nigeria or Kuwait. We will return to this.
Salmond: “The No campaign, the Tory Party, the Labour Party are the only people in the world who argue that the possession of substantial amounts of oil and gas are somehow a curse.”
Erm, “Resource Curse” which has a literature that can fill a whole bookcase? Jeff Sachs, Paul Collier, various other public intellectuals all warning of the dangers of natural resource based economies?
Salmond is resolutely in the mid-20th century view of oil as an unadulterated blessing, bringing only hard currency and joy, as befits someone who, in fact, started professional life three decades ago compiling research about companies in the North Sea when he worked as an analyst in the Royal Bank of Scotland.
When Darling challenges on revenue instability Salmond’s answer is a stabilisation fund: “Every other oil country has faced this,” he says, with a good humoured impatience designed, successfully, to make Darling out to be a cussid and uninspiring naysayer.
Well they may have faced it but they haven’t licked it. There are more natural resource dependent economies around the world that have not mastered boom-bust cycles than that have. Considerably more. Chile succeeded spectacularly during the financial crisis with not very large resources, and there are a bunch of fabulusly wealthy countries that have stuck some of their billions into stabilisation funds as well as other vehicles because why not?
A stabilisation fund is not the same as what is commonly called a wealth fund, or a Sovereign Wealth Fund. Norway, for example, darling of the Scottish Nationalists, doesn’t have a discreet stabilization fund to deal with oscillations in the price of oil because Norwegian public finances are not actually that dependent on the current price of oil in the first place. It deals with that through budgetary mechanisms. Its fabled Government Pension Fund is a wealth fund, designed to build assets over the long term, not act as a cycle smoother in the short term.
Darling’s assertions that Salmond’s claims about revenues from the North Sea are bullish are true. The last few weeks have seen a bewildering range of claims not just by the politicians but by experts who seem to have been drawn into both sides of the debate. Ian Wood, a self-made North Sea billionaire who just oversaw a report supposed to inform policy about the future of the North Sea, says the nationalists are hugely exaggerating. Alex Kemp, the province’s leading academic historian, disagrees. And it must weird to non-experts that experts can disagree by a factor of two to one over how much oil is yet to be produced out of the North Sea (it’s less of a disagreement about the amount of oil that is there, and more a debate about how much it will ever be commercial to extract).
The only trouble is Salmond is right about the naysaying. Darling represents a view of North Sea oil emanating from London that in the 1970s quite deliberately decided not to release information about the possible extent of North Sea oil and revenues in order not to further excite nationalist sentiment.
But a far more informed and entertaining debate on Scottish independence and North Sea oil, in fact, took place not so long ago between Jim Sillars and George Galloway. It was all the richer for not being remotely electible in this age of besuited middle-of-the-roadism (While we are about it, am I alone in thinking an independence debate which both sides are debating on the basis of whether you’ll be better off or not is sad?)
Sillars, an old Scottish Labour pol, would like a Scottish national oil corporation, to take a direct stake in North Sea fields. It could be created, he maintained, “without a great deal of trouble, which means we have a window onto the oil industry that we were denied when the British National Oil Corporation was destroyed by Margaret Thatcher”.
There’s no denying the historicity of this. Tony Benn had high hopes for BNOC as a national oil company but Thatcher’s election in 1979 put paid to that and her government eventually sold the company to BP. Meanwhile, Norway unobtrusively developed Statoil, founded in 1971 in what one imagines is the teeth of opposition from the big oil companies and which is now a player not just in the Norwegian North Sea but globally, a world leader in offshore technologies. There’s a longer story waiting to be told of how that happened, how the grand progressive political goal of a national oil company was actually implemented in a studied, low-key, incremental, self-disciplined – Norwegian, in fact – fashion. But still. A priori, why the hell not?
“And would you nationalise anything else?” the smart young BBC presenter asks after Sillars has outlined his vision.
The veteran is non-plussed for a moment.
“I’m not talking about nationalising the whole of the oil industry,” he eventually gets out. As indeed he isn’t. State participation – the legislated involvement of a state company in a consortium with private companies happens in dozens of countries around the world. There’s plenty of debate about it in oil circles, often split along predictably ideological lines. But that’s what Norway’s Statoil does – and the entire roster of Big Oil companies agree to do it with them because the Norwegians have almost perfectly judged how much they can take and still be an attractive investment.
“One of the problems we have got in Scotland,” Sillars continued, “is that we are totally ignorant, most of us, of what the North Sea involves. There are 570 oil rigs out there. It’s not a pond.”