Scottish Energy Minister Fergus Ewing has revealed why figures from the UK Department of Energy consistently show that the scale and value of North Sea oil and gas as being lower than figures from the Scottish Government.
The latest Oil and Gas Bulletin – published yesterday by the Scottish Government – says that the North Sea is currently experiencing high levels of investment.
A number of large fields, including Golden Eagle and Mariner are currently in development and recent changes to field allowances and technological improvements have allowed a number of marginal developments to secure investment funding.
Investment in maintenance and asset integrity has also increased in recent years as companies seek to extend the operating lives of existing facilities. As a result of these new developments coming onstream, and improved production efficiency at existing facilities, the industry expects production in the North Sea to increase in the coming years.
The Bulletin accepts that in the short-term, the levels of investment observed in the industry have depressed North Sea tax receipts. Temporary shutdowns in a number of fields in 2012 and 2013 have also put downward pressure on tax receipts.
However, in the coming years, investment spend is expected to return to more ‘normal’ levels and production is forecast to rise. Both these trends will help to increase tax receipts. However, any such forecasts are sensitive to the assumptions used. Under all the scenarios considered above, Scottish oil and gas production is expected to remain a significant source of tax revenue in the coming years.
The UK Government Department for Energy and Climate Change (DECC) also publish forecasts of North Sea production to 2019. They predict that production will remain broadly stable at 2013 levels over the next six years.
But the Scottish Government Oil and Gas Bulletin explains:
“DECC’s forecasts are also based on field level data provided by operators. DECC incorporates its own judgement about future uptime and project slippages and applies “very significant negative contingencies to the aggregate figures”. These adjustments are likely to explain the difference between DECC’s forecasts and those reported by the industry.”
In contrast, key results published yesterday in the Scottish Government Oil and Gas Bulletin show:
- The North Sea has seen very high levels of investment in recent years, with capital spending reaching £14.4 billion in 2013. This has been accompanied by a drop in production, reflecting a long-term downward trend in base production and unplanned stoppages at a number of fields. These factors have put downward pressure on North Sea tax receipts.
- Industry forecasts suggest that production should start to improve from 2014. The latest Index of Production statistics show that output from oil and gas extraction in February and March 2014 was approximately 3% higher than in the same months last year. Oil and Gas UK’s central projection is for production to increase by 14% between 2013 and 2018. Investment levels are also expected to moderate in the coming years as a number of major projects are completed.
- A range of scenarios for the outlook of Scottish North Sea tax revenues are presented in the second half of the Bulletin. The forecasts are sensitive to the assumptions used. Based on a range of assumptions about future production, prices and costs, cumulative Scottish North Sea receipts could be as much as £39 billion in the five years to 2018-19.
Commenting on the bulletin, Finance Secretary John Swinney said: “Using the industry estimates of production and realistic oil prices it is clear that Scotland’s oil industry will continue to make a valuable contribution to our public finances for many years to come.
“As the industry recovers from UK tax changes, invests in new fields and extends the life of existing fields, revenues will begin to rise again.
“Oil and Gas UK’s central forecast is for production to increase by approximately 14% between 2013 and 2018.
“The figures published today show that Scotland’s finances in 2016/17 will be in a strong position and future Scottish Governments will have the opportunity to start an oil savings fund from the point of independence.