Nicola Sturgeon’s oil paradox

Is oil extraction a form of environmental vandalism which threatens life on the planet, or a source of revenue which could propel Scotland and its people to new levels of wealth? It is little use asking Nicola Sturgeon: she appears to believe it is both.

Three years ago, when striking schoolchildren and Extinction Rebellion were telling us that the world must become carbon-neutral by 2025 or face massive loss of life, she told the SNP spring conference:

‘I met some of the young climate change campaigners who’ve gone on strike from school to raise awareness of their cause. They want governments around the world to declare a climate emergency. They say that’s what the science tells us. And they are right. So today, as First Minister of Scotland, I am declaring that there is a climate emergency.  And Scotland will live up to our responsibility to tackle it.’

Well, no-one can say she did nothing. Last year, she came out against the development of the Cambo oil field off the coast of Shetland, calling on the UK government to deny the developers a licence, and thereby forgoing the chance to extract 170 million barrels of oil over 25 years. But hang on, what’s this? Last month, the SNP published its plans for ‘Building a New Scotland Fund’, something which would apparently inject £20 billion into the Scottish economy in the first decade of independence, growing the economy by an extra 0.5 per cent to 1 per cent by the end of the period. And how is it going to be funded? You’ve guessed it: oil money. In the document’s foreword, Sturgeon says she plans to extract her £20 billion from ‘windfall proceeds from oil prices that are likely to remain relatively high in the period ahead’.

The paradox is glaring. Once you have declared a ‘climate emergency’ and told kids they were right to demand that net carbon emissions be reduced to zero by 2025, it seems a little rich to base your case for independence on the continued extraction of oil revenues well into the 2030s. Sturgeon can’t have her cake and eat it: if you are going to leave your oil in the ground then you are going to leave your wealth in the ground, too.

Once Cambo has been taken out of the picture, which Nicola Sturgeon has done, is it really possible to extract £20 billion of oil and gas revenues from the Scottish sector of the North Sea? As of yet, the First Minister hasn’t categorically said that she opposes development of the Rosebank oil field, which is believed to be capable of producing 70,000 barrels of oil a day. However given the First Minister has ruled out Cambo being given the go-ahead in an independent Scotland, it would be absurd then to support the development of an alternative new field – or indeed to develop any new oil or gas reserves in Scotland. 

Is it possible that existing fields could deliver £20 billion as they are worked out? Tony Mackay, who helped develop Norway’s sovereign wealth fund in the 1970s, is doubtful. North Sea production, he said this week, has ‘declined massively in recent years as many fields have ceased production’. ONS figures show that government revenues from the North Sea have receded precipitously over the past 15 years, from over £10 billion in 2008/09 to £200 million in 2020/21. And that was for the whole of the United Kingdom, not just what could become Scotland’s slice of the North Sea.

Presumably revenues will be higher this year because of the spike in oil and gas prices, but historic experience shows that oil spikes tend to be very short-lived affairs. How Sturgeon expects to cream £20 billion off oil company profits over the next decade remains something of a mystery. Imagine you are an oil company running down a largely exhausted field: you are unlikely to hang around to squeeze out the last drop if you are threatened with a windfall tax.

Alex Salmond made the same mistake during the 2014 referendum campaign when he based his case for independence on elevated oil prices. It’s a good job the vote was lost: a few weeks after the poll, global oil prices crashed due to a glut in production, with Opec members trying to drive US producers out of business. Down with the oil price went Salmond’s economic case for independence.

But at least Salmond wanted to embrace oil and gas production – in contrast to Sturgeon, who simultaneously wants to exploit it and stamp it out. That is no coherent policy at all.