Oil and gas have always loomed large in Scottish politics, though perhaps never so contentiously as now: four months after Glasgow hosted COP26 and announced its opposition to new oil extraction at Cambo, gas and petrol prices are at record levels and Putin’s war in Ukraine has highlighted Europe’s dependence on Russian gas.
Predictably, some backbench Conservative MPs are calling for new North Sea drilling, in the mistaken belief that a short-term gas crisis can be solved by new wells that will take years to develop.
Should Holyrood follow Westminster in flirting with new drilling? The temptation of all governments faced with a hard choice is to fudge and hope the issue disappears. But the government’s Shared Policy Programme commits it to review the contribution of North Sea oil and gas to Scotland’s security, economy and wellbeing by the end of the year. The issue can’t be ducked, so here’s the case for opposing new oil on the grounds of security, economy, and wellbeing.
The security argument is easily dismissed. An independent Scotland would have 95 per cent of UK oil, and 60 per cent of the UK’s gas reserves, despite having only 8 per cent of the UK’s population. Scotland’s oil consumption is about one-seventh and its gas consumption about one third of its production. Net zero means oil demand will fall by over half by 2035, and unabated gas (ie burned without capturing the carbon, for example to heat homes) by two thirds by 2035 before being essentially eliminated by 2045. There’s just no case that new extraction increases energy security, even if that was as simple as self-sufficiency.
Some will argue that the invasion of Ukraine changes things: any oil we drill (and most of Scotland’s resource is oil, not gas) could supplant Russian imports. But this is wrong on two grounds. First, the UK mostly imports Russian diesel, but diesel car sales collapsed from half the new car market in 2014 to just 5 per cent last year.
We will stop buying diesels before any new wells could start producing. Second, as NATO recognises, climate breakdown is the ‘shaping threat’ of the 21st century, a threat that sets the framework within which conflict occurs. We don’t need to increase climate security risks to lower Russian import dependency, so we shouldn’t.
The question of wellbeing is more complex with around 30,000 people employed in the UK offshore oil and gas industry. Of course, the harm caused by climate change is obvious, and recent calculations by researchers from UCL show that 60 per cent of existing global reserves of oil and gas can’t be burnt if we are to limit warming to 1.5 degrees, even with the rapid roll out of carbon capture and storage technologies. This is hardly controversial: the International Energy Agency agrees that there can be no new oil and gas infrastructure built after this year. This is an uncomfortable truth for current oil and gas workers, but the challenge here lies in just transition rather than trying to justify carrying on.
In Scotland though, that just transition cannot be just rhetoric. The recent ScotWind auction saw the private sector snap up the right to develop 25GW of offshore wind in Scottish waters alone. If these were all developed, around 142,000 jobs would be created. Of course, not every oil worker will find a job in offshore wind, but there could be five jobs waiting for every oil worker if they tried
The economic case for new fossil fuels is terrible. So bad, in fact, that oil lobbyists have taken to justifying oil extraction via a crude nationalism. As we will use oil and gas for the next decade or two, they argue, why shouldn’t we extract what we use from the North Sea rather than buying it in from abroad? This sounds superficially sensible, but students of the Scottish Enlightenment might raise an eyebrow: if new oil and gas is a beggar-thy-neighbour problem – a phrase made famous by Adam Smith – in which opening ‘our’ new oilfield means shutting ‘theirs’, shouldn’t we take a hard look at the economics of fossil fuels as a globally traded commodity? Comparative advantage says we should only extract our oil if we can do it more cheaply than others.
We can’t, at least not without subsidy. 40 per cent of the total cost decommissioning, already reckoned to cost £46 billion before new wells are sunk, will be paid by taxpayers, not oil companies. It’s easy to gamble that a new oil well in the North Sea will see others shut down elsewhere if you only pay 60 per cent of the cost of losing the bet and being forced to decommission early. Westminster has already suggested that an independent Scotland would see every person pay £3,800 for decommissioning, ten times more than today, when costs are spread across the whole of the UK.
The UK already has slashed oil and gas taxes to the bone. revenue in Denmark per barrel of oil extracted is four times higher, and Norway levies ten times more per barrel. It’s such a good deal for oil and gas companies that a third actually paid negative tax on their North Sea operations in 2019. Despite all this, new investment hasn’t poured in. The private sector, in its own quiet way, is telling us that new North Sea extraction is marginal at best.
The industry is extracting the last profits from an expensive basin and hyping up demand for new projects to squeeze out the last drops of subsidy. In a few years’ time, as electric vehicles cut demand for oil, heat pumps cut demand for gas, and the offshore sector transitions to harvesting wind rather than fossil fuels, the 18 new projects that Oil and Gas UK are calling for could end up as stranded assets. It’s easy to see how the taxpayer could be left with the costs of decommissioning but not the revenue from production, because we just don’t need the oil – it will be obsolete.
A decade ago, the fossil fuel industry predicted a need for 26 new gas power plants by 2030, dismissing offshore wind and assuming demand would rise. But clean tech moves fast: in less than a decade, offshore wind became cheaper than gas and energy efficiency saw demand fall. Since then, just two gas power plants have been built, one of which has struggled with profitability, while offshore wind increased tenfold.
Independent or not, the future of Scottish energy lies in embracing a rapid transition to a net zero North Sea, not in the pipe dreams of an oil fuelled past.
Dustin Benton is policy director at Green Alliance.