ASSUMPTIONS ON FUTURE VALUE OF OIL AND GAS MUST BE REALISTIC
29 May 2012
Speaking following the launch of the Oil and Gas Strategy today, Labour’s Shadow Energy Minister, Rutherglen and Hamilton West MP Tom Greatrex, said:
“The oil and gas industry is an important part of Scotland’s economy, and having agencies supporting economic activity in and around Aberdeen, coupled with export potential, is precisely what should be happening.
“However, Alex Salmond’s assumptions of the future value of oil and gas, and potential production, could be way off the mark. The estimate of £1.5 trillion is based on a future oil price way above that predicted by the foremost academic expert in the field, Professor Alex Kemp of Aberdeen University.
“We can all acknowledge the value of the North Sea to Scotland – both in the number of jobs it creates and the revenue it provides. But what people need is realism about what the future holds. Scotland and the UK currently mutually benefit from the sharing of energy resources, risks and rewards. It makes no sense to change that.”
Notes to editors
For further information please contact David Ross on 07725 988440
1. The Scottish government’s assessment of future oil and gas value is based on a future oil price of $100 a barrel
Question S4W-06988: James Kelly, Rutherglen, Scottish Labour, Date Lodged: 02/05/2012
To ask the Scottish Executive, further to the Minister for Energy, Enterprise and Tourism's evidence to the House of Commons Energy and Climate Change Committee on 17 April 2012 where he stated that the "economic benefits [of North Sea oil and gas] total around £1.5 trillion, although all these figures are dependent upon a large number of calculations that are dependent upon the oil price", what methodology (a) it uses to determine the future cumulative revenue to be accrued from North Sea oil and gas and (b) assumptions it makes regarding the future price of oil.
Answered by Fergus Ewing (16/05/2012): The Scottish Government estimates that remaining oil and gas reserves could have a wholesale value of up to £1.5 trillion in 2012 prices. The calculation is based on the following assumptions.
(a) Up to 24 billion recoverable barrels of oil and gas equivalent remain in the North Sea, as estimated by Oil and Gas UK.
(b) Oil prices will average $100 a barrel in real terms from 2012 onwards. By comparison, the Office for Budget Responsibility’s Fiscal Sustainability Report assumes a long term oil price of $107 a barrel in real terms.
(c) A Sterling/Dollar exchange rate of £1/$1.60 is used to derive the Sterling value of remaining reserves. This is the average exchange rate during 2011.
“...while the projections under the $70...scenario have a high probability of being achieved, the investment projections under the $90...case should be regarded as having a lower probability of being attained.”
Professor Kemp goes on to state that with an assumption of $70 a barrel, total production would be around 16.5 bn barrels of oil equivalent (page 56), far less than the Scottish government’s prediction of 24bn.