Scotland’s oil and gas revenues are estimated to be more than 6 times those forecast by UK economic watchdog – the Office for Budget Responsibility (OBR) – over the next 30 years, according to an independent report published today.
Along with the establishment of an oil fund, these are some of the key findings contained in Part 2 of N-56’s latest Scotland Means Business report entitled “Oil and Gas – A Pivotal Moment” published as part of a series of reports which aims to propel Scotland to become one of the top five wealthiest countries in the world.
The report was prepared for N-56 by economics consultancy BiGGAR Economics and energy consultancy Tulloch Energy.
N-56 is an apolitical business-led initiative that seeks to examine and promote the fundamentals of Scotland’s economic investment case.
The report highlights the ‘woefully pessimistic forecasts on barrel price and oil and gas reserves left put forward by the OBR,’ established in 2010 to provide “independent and authoritative analysis of the UK public finances” and on whose figures the state of Scotland’s future public finances are often based. Historically forecasts from the OBR have proven to be woefully inaccurate (see Notes to Editors).
The OBR indicates that between 2014 and 2040 oil and gas revenues will amount to a mere £57 billion.
However, based on expert forecasts for barrel price and production forecasts from the likes of industry body Oil and Gas UK and oil economist Professor Alex Kemp, if the recommendations put forward by N-56 and the Review headed by Sir Ian Wood (Wood Review) to maximise recovery of oil and gas are implemented, this figure could be as high as £365 billion. This is more than 6 times that of the OBR (with Scotland’s share of UK offshore tax revenues agreed to be around 90% on average).
So, instead of public sector deficits Scotland’s public finances could be comfortably in surplus by as much as 7% of GDP by 2020 (more than £12 billion per annum) with surpluses of £9bn-£11n per year in the 2020s and £5 billion per year in the 2030s, providing an opportunity to build up an oil fund, as almost every other oil producing country has done.
As a contrast, in the 2020s and 2030s the OBR is forecasting that the UK public finances will return to deficit, even if the current UK Government’s target of eliminating the current deficit by 2018-19 is met
While the OBR, for example, is forecasting a Scottish public sector deficit of 4% of GDP in 2026-27, the high oil revenue scenario would generate a Scottish public sector surplus of 2.2% of GDP.
Commenting on the report, Graeme Blackett from N-56 said: “Since 1970 over £1 trillion in oil and gas revenues have been produced by the North Sea and at least as much value remains to be produced as already has been, presenting a tremendous opportunity for the sector and for Scotland’s public finances.
“Scotland is a net contributor to the UK public finances, in part due to our geographic share of oil and gas revenues, and this ensures that our finances are typically healthier than the UK public finances as whole.
“The OBR puts forward incredibly pessimistic forecasts on both barrel price and reserves, largely discredited by industry experts. What is clear is these natural resources can be maximised through implementing the recommendations put forward both by ourselves and the Wood Review, delivering considerable surpluses that we would recommend are used to invest in an oil fund to benefit future generations.”