Think-tank urges UK-Govt to relocate regulators to Scotland to maximise oil and gas output

N56 business group logoUK government energy policy- and decision-makers should be located in Aberdeen instead of London to ‘maximise economic recovery’ of North Sea oil and gas resources, according to an independent Scottish think-tank.

The N-56 business organisation – which takes its name from Scotland’s latitudinal map co-ordinate (56.4 degrees North) – says such a move would provide a ‘vital boost’ to the sector and would copy the status quo in Norway, where the state Energy/ Oil Dept is based in Stavanger, home port to most of the country’s offshore exploration and recovery operations.

N-56 is also calling for a more competitive tax regime for the North Sea established through a thorough review of the taxation system; the creation of a Hydrocarbon Investment Bank to boost investment in the sector, as well as a long-term oil and gas industrial development plan to foster economic growth.

The latter echoes the strategic approach taken in Norway where policy has been developed by government, the industry and others working collaboratively to identify the measures required to maximise the sector’s long term economic contribution, giving much greater support to the industry than the UK Government currently is.

These are just a number of recommendations and policy measures contained in N-56’s latest Scotland Means Business report entitled “Oil and Gas – A Pivotal Moment” – 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 energy consultancy Tulloch Energy and policy and economics consultancies, DAMVAD (Norway, Sweden and Denmark) and BiGGAR Economics (Scotland).

North Sea oil rig

The report emphasises the strengths of the oil and gas sector, which supports more than 200,000 Scottish jobs and – with 90% of UK reserves in Scottish waters, Scotland is the largest oil producer and second largest gas producer in the European Union.

It also highlights that while the oil and gas sector accounted for 13% of Scottish GDP in 2012, Scotland is less dependent on its largest industry than the UK where financial and business services accounted for 15% of GDP and considerably less than 26% contribution that the oil and gas sector makes to the Norwegian economy.

A strong Scottish oil services sector has developed, with half of sales now coming from global markets, some £10 billion per year. The UK Continental Shelf (UKCS) has already been in production longer than was predicted in the 1970s and 80s with over £1 trillion pounds worth of hydrocarbons having been produced from the UKCS since 1970 (contributing £313 billion in oil revenues for the Treasury) – with ‘at least as much’ value remaining to be produced as already has been.

The report argues that locating those government policy and decision makers responsible for taxation and regulation in Aberdeen will ensure it is closer to those whose jobs and businesses depend on the continued success of the sector, making it more responsive. It outlines three scenarios in which this would be done: full independence or, in the event of a no vote under the control of the Scottish Government or as an arm of the UK Treasury and energy department, all located in Aberdeen.

The move it sees as part of a process of decentralisation of departments outwith London/Central Belt of Scotland, echoing the situation in Norway where policy makers in the petroleum directorate (Om Oljedirektoratet) are co-located with the industry in the Norwegian oil capital, Stavanger. Other measures proposed in this plan include:

  • Funding an oil and gas industrial development plan: A small percentage of taxation receipts should be ring-fenced and used to fund R&D, skills development, international business expansion support and other activities designed to foster economic growth. For example, 5% of taxation receipts would provide an average annual contribution of c. £450 million.
  • Education and skills: The framework exists to deliver the enhanced skills development programme needed, with OPITO, the global leader in oil and gas workforce development headquartered in Portlethen. What is required urgently is a much greater effort between government, industry and the education sector to develop and implement an industry-led long term national skills development programme in order to tackle skills shortages.
  • Scotland the engineering brand: Scotland has earned a reputation for high quality engineering and efficient project delivery and the power of this brand could be harnessed and developed in a cross sector initiative.

Martyn Tulloch of Tulloch Energy, said:  “The oil and gas sector is one of Scotland’s great strengths and it has the potential to remain so for many years to come.

“Implementing the recommendations of the Wood Review promptly and in full is essential to ensure that the remaining potential of Scotland’s offshore oil and gas reserves is maximised.  The recommendations in this report are proposed as additional actions to help secure the greatest benefit for the wider Scottish supply chain.  

“There is an urgent need for all-encompassing industrial development plan, far exceeding the scope, scale and ambition of the myriad of existing strategies, business plans and similar initiatives. Scotland enjoys a leading position due to its long established industrial base, strong academic institutions and established support systems. We need to support the industry in a more significant manner than it currently is but the opportunity remains to establish a world-leading industrial support mechanism, led by the industry with wider stakeholder support.”

Graeme Blackett from N-56 (and BiGGAR Economics) added: “With 90% of the oil and gas reserves in Scottish waters – and whether Scotland becomes independent or not – it is vital that those policy and decision makers responsible for taxation and regulation of the sector are located in Aberdeen in order to ensure we can deliver a sector that is responsive to those most impacted by it.

“The UK Treasury must play its part if we are to maximise the considerable reserves we have left, moving from a projected high percentage tax take, medium price, low production scenario, resulting in low levels of employment and government revenues to a responsive medium tax take, medium price, high production environment where employment and government revenues are maximised.”

Founded by Dan Macdonald, N-56 aims to provide a new locus for Scotland’s business community, working with government and others throughout the country to plan a more prosperous future for the whole of Scottish society.

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed