Today’s announcement on oil and gas provides both critical support to the industry, and a dividing line with our opponents, writes Greg Williams, candidate for Aberdeen Donside.
Consensus is a rare thing in Scottish politics. Most parties agree that the energy industry in the North East of Scotland needs some support. We want to transition to a low carbon future, but we need to retain the skilled, currently hydrocarbon, jobs in Scotland to achieve that. From a budgetary perspective, we’ll all be surprised if the Chancellor doesn’t announce tax breaks for the industry this week, rather than if he does.
But tax breaks only help if you’re making a profit. As last month’s Oil and Gas UK Activity Survey reported, there are many companies and fields not making a profit at $40 oil. This is a problem for Scotland. If there are pieces of structure – oil rigs and pipelines – out there in the North Sea not making a profit, their owners will decommission them. What if the oil price recovers? By then, it might be too late. Wells could be shut in permanently. Heavy lift vessels booked. Contracts awarded.
And the lost opportunity for Scotland grows. It’s much cheaper to develop the smaller oil and gas fields which remain untapped in the North Sea if they are tied into existing infrastructure. Developing them from scratch, as would be required if the ‘hub’ asset is removed, would in many cases be uneconomic. So the reserves get stranded, along with the jobs and tax revenues that come with them.
Scottish Labour would act to prevent this happening. Our UK Oil Investments Limited (UK OIL – see what we did there?) would invest in these threatened assets to prevent them being prematurely decommissioned, and thereby secure jobs and tax revenues for Scotland and the UK for subsequent decades.
We know that capital is constrained – globally, not just in the oil and gas sector. Without capital, local operators cannot make the investments needed to keep the assets operating and viable. Wells need interventions to keep them flowing. Compressors need upgrading. And developing new fields still requires those expensive drilling rigs, despite many currently being idle.
This policy would represent a radical shift in government approach – not since Britoil, privatised by Thatcher in the 1980s, would the UK government have had such a hands-on investment role in the North Sea. However, critically, it’s not a radical model to the oil industry. UK OIL would make that investment as an equity partner. The state wouldn’t operate the assets, but it would ‘farm in’ as an investor, sharing the risk but also the profit. This is a common model, used in other basins all around the world, and indeed by other countries’ state owned oil companies right here in the North Sea already.
And what about the politics of the policy? I don’t want to be churlish and upset our Nationalist friends by bringing up GERS again, but the reality is there is not the headroom in Scotland’s books to fund the investment. As part of the UK, we can draw down on its broad shoulders, making that investment as part of a more stable, stronger economic entity.
Rather than bleat on about the last thirty years, and put their head in the sand about the future as Swinney did last week, Scottish Labour would act, and can act, to secure jobs and tax revenues. It’s on that bold but realistic platform I’m proud to advocate this policy, and stand for election in Aberdeen – Europe’s energy capital.