Hysteria discovered in North Sea
- Vorlich field is good news but changes nothing
- SNP needs to re-think role of oil in its financial planning
War has broken out again in the North Sea over the latest oil discovery which has prompted more claims and counter-claims about its value to the Scottish economy.
Sadly, hysteria is in danger of clouding the reality of this discovery, rather misleadingly described in most of the media as “significant” when “modest” would have been nearer the truth. Exaggeration of the potential output of this field has only encouraged the conspiracy theorists to return to the independence fray and accuse the companies themselves of playing politics.
Let’s look at some hard truths. BP and GDF Suez have confirmed that the field in the central North Sea, named Vorlich after a Scottish mountain, could yield a maximum 5,350 barrels per day. BP described it as “a good discovery for the stage that the North Sea is at”. In other words, given the steady decline in output from the North Sea, this is a notable find that is worth exploiting. But it will not change anything.
The “new” field and its potential contribution to output was included in Sir Ian Wood’s calculations which put remaining reserves at between 15 and 16.5 billion barrels, as opposed to the SNP’s 24 billion.
The steady decline in output is undeniable. In the last decade it has fallen from 2.3m barrels a day to 866,000. This, by the way, is only twice as much as the cut made recently by the Saudis in response to the falling price of a barrel.
So what does the Vorlich field mean to Scotland public finances? Answer: not much. The SNP said it would be worth £157m a year at current prices. After the cost of extraction the Scottish government would be lucky to yield enough tax revenue to pay MSPs their annual expenses (sic). The estimated 50 million barrels over its lifetime represents about 0.25% of total extraction from the region.
The real importance of this discovery is this: it maintains production in the North Sea, and therefore the skills and jobs of workers. Secondly, and this is the real “significance, it shows the benefit of companies working together. This was a key element in Sir Ian Wood’s report. It also shows what can be done when the government, in this case Westminster, puts in place a tax system that encourages activity in the industry.
It should also remind the Scottish government of what is really out there. Vorlich is important and welcome, but it is not a game-changer. And with oil prices falling the SNP really needs to think carefully about how much emphasis it is placing on the contribution of oil to its financial planning. See Oil price warning
Hopefully, we will see more collaboration between industry players. It will be a vital tactic in making exploration and production more economic and ensuring more reserves can be made recoverable.
Sadly, nothing will create more oil in the ground, however many times anyone says it.