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Sunday, 25 May 2014

Is Scotlands oil running out? Depends who you ask.

Regardless of how you perceive the relevance of oil & gas as energy sources in a world where carbon emissions NEED to be reduced, sulfur & nitrogen oxides NEED to be avoided or lead and mercury particulate NEED to be eradicated - you will, at the end of this blog accept that oil & gas will NEED to be exploited virulently over the next 50 to 100 years if human civilization is to conduct its affairs peacefully. The insatiable hunger for human expansion & growth demands it.

Oil & Gas aren't just burned to produce heat in our boilers or to generate steam to drive electrical prime movers, they are used unavoidably in the production of plastics & polymers, circuitry, electronics, computer hardware, packaging and a lot more in between. Hydrocarbons are indispensable to our way of life & the sooner this is accepted, the better.

Now, before you get up off your high horse and shout me down, understand one thing - I abhor any form of waste - energy used is energy saved and in terms efficacy equals morality, I'm prepared to be judged on how my take on Scotland's energy future pans out. For you to get the best out of this blog entry, I've divided it into categories as so:

1. How much UK Oil & Gas is left? (In established, Proven Reserves)
2. How much of Scotland's Share of the North Sea has been explored? (In geographic terms as per 2014)
3. What is an R/P Ratio and how does it affect Scotland becoming independent?
4. How much value is Scotland's share of proven reserves to the UK?
5. Will Scotland have a surplus of energy and if so, what can it do with it?

Section 1

Proven Reserves

The UKCS (United Kingdom Continental Shelf) First existed when Norway, BRITAIN, Denmark, Germany & The Netherlands agreed to what is now known as the MEDIAN LINE. The Median line was agreed by these 5 European member states long before Scotland was given any voice in discussions over the fishing, oil or mineral rights in the north sea. It is important that you recognise this fact as it will also allow you to understand how this median line was changed in 1999 by the UK without the consent of either Scotland or the other 5 countries who initially agreed it. This raises questions over whether the rUK can ever lay claim to the marine area it annexed under the 1999 Scotland Act.

The median line - or Exclusive Economic Zones (EEZs) agreed by North Sea Constituents

On the Subject of PROVEN reserves, as of 2009, the UK was home to some 0.2% of the worlds reserves of crude oil (400,000,000 tonnes) - This figure however, only remains true if no further exploration or drilling activity takes place (which from 2009, it already has - at an ACCELERATED rate)

In addition to this, it should be noted, that the portion of the North Sea exploitable by the UKCS has only seen marginal investment - and usually to the extremities of the EEZ and for reasons once explanation, will be remarkably obvious.

North Sea Oil & Gas Fields Developed around Median line

There are only two reasons for the oil and gas in the North Sea to be primarily exploited from adjacent-to or near the median line in all instances across all 5 "member states". The first one relates to cost sharing where a field can be established in both member countries interests (production cost splitting or tax revenue sharing). And the Second is the fear that the Median Line might one day be revised. If you exploit the border area of your neighboring country prior to any treaty amendment, you are not required to "reimburse" any profits you may have made while exploiting said area. Through the prism of any country that existed only 20 years after the outbreak of WW2, its easy to understand how such a protectionist mentality took hold - and as such, the government of 40 years ago established what we now know as the UKCS Oil & Gas network of the UK.


Maps of the UKCS Oil & Gas Network

2. How much of Scotland's Share of the North Sea has been explored?

This is a relatively straightforward matter of establishing which blocks the UK Govt has allowed drilling and production activity to take place. This is made so much easier when you consider that the UK has done all the work for us via the DECC - for expediences sake, LESS THAN 2% OF SCOTLANDS SHARE OF THE UKCS HAS BEEN EXPLORED OR LICENSED FOR PRODUCTION

Map showing the exploited areas of the Scottish Area UKCS Oil & Gas Map

Now, one might ask WHY the UK feel they need to exploit Oil reserves in Scotland over any in say, England? The answer is two-fold. Firstly, England has very little Oil, Secondly, remember the point about the Median line exploitation? Scotland was never guaranteed to remain a mainstay of the UKCS - so exploiting its mineral reserves ASAP makes a huge amount of sense - even if it's highly likely that you're imminently going to lose control of it.

The fact that only approximately 2% has been explored is significant - there may yet be trillions more barrels in the north sea, or west of Shetland which is technically the Atlantic. Aggressive expansion is ongoing but the time in which this can be achieved is very short. It's estimated that at the rate the UK consumes our geographical resources, the point of no return is 5 years. in response to this, the UK established project pathfinder - a weak attempt to stoke interest in using the existing infrastructure to exploit new fields and developments before the fiscal viability of it disappears entirely.

http://www.eeegr.com/uploads/DOCS/decc-presentation.pdf


3. What is an R/P Ratio and how does it affect Scotland becoming independent?

An R/P Ratio is a term used by economists to "loosely" estimate the rate of a countries stored reserves of a given material against how aggressively that material is used or "produced" - I should note this does not mean "exhausted" but in either sense, I will demonstrate how Scotland fares better without the rest of the UK.

Datatable of World Production Figures (BP, 2009)


Crude oil reserves in the UK is estimated to be 400,000,000 tonnes versus a production ratio of 68,000,000 tonnes, This means that IN THE UK - OIL WILL RUN OUT IN 6 YEARS. (The source of many scare stories, I'm sure)

Taking Scotland's share of UKCS oil into account, the following is true (Via population share)

394,400,000 tonnes (98.6% of UKCS)
5,712,000 tonnes (8.4 % of UK Population)

This means conversely that IN AN INDEPENDENT SCOTLAND - OIL WILL RUN OUT IN 70 YEARS.

None of this takes into consideration that Scotland already generates nearly 50% of its current energy requirements from renewable sources or that by 2030 80% of our total demand will be met solely by renewable energy. As I said before, I abhor waste and in an independent Scotland you can be sure that further steps such as adoption of CHP & AD systems would be forcefully encouraged. 

http://czkane.blogspot.co.uk/2014/02/how-would-scotland-cope-if-it-became.html

4. How much value is Scotland's share of proven reserves to the UK?

This isn't hard to answer, but what is, is the term "value". Speaking with the current infrastructure with the current tax regime, 400,000,000 barrels for the next 6 years would be worth nearly nothing to the UK, because the UK imports more energy in the form of hydrocarbons than they produce as a whole and only derive value on the taxation applied to the oil exploited by private companies - this rounds to anaverage of a palty £7bn a year - given that tax deals are struck on a case-by-case basis and have recently endured some of the most regressive taxation on record at the behest of George Osbourne

http://www.dailymail.co.uk/news/article-1371216/Statoil-North-Sea-Oil-firm-pullout-George-Osbornes-budget-tax.html

Scotland, on the other hand could look to where the real value in oil & gas lies, within it's supply chain and the ancillary economy. Making it a requirement for all north sea firms to register thier companies in Scotland would be a start, but what if you went further and outlawed the off-shoring of NI contributions from the Isle of Man and Guernsey? What if you closed the loop-holes allowing companies to readily shift capital around foreign subsidiary companies or even made it mandatory for PAYE to be applied to all directors? These small but perfectly acceptable changes would more than triple what the UK currently says it values North Sea oil - and without even having to invoke the word "tax".

5. Will Scotland have a surplus of energy and if so, what can it do with it?

From the above, it's quite patently obvious that Scotland will have a surplus of energy - but what we can do with it holds the most intriguing possibility. We could sell it and create a sovereign wealth fund akin to the $400,000,000,000 fund that Norway has.

http://en.wikipedia.org/wiki/The_Government_Pension_Fund_of_Norway

We could use our own oil and gas domestically to drive down the cost of living and bolster the quality of life of our citizenry - also known a energy security, in which we don't even feature in the World Economic Forum's 2014 report due to how appallingly the UK performs.

http://www3.weforum.org/docs/WEF_EN_NEA_Report_2014.pdf

Or, we could trade our energy within the EU, adopt energy efficient programs and provide less energy-wealthy nations with resources in the spirit of community & camaraderie that perhaps the EU was originally designed to? Who's to say? The only thing that can be said with any certainty that none of these choices occur from the status quo & that nothing changes with a No vote.

3 comments:

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