MOSCOW, September 18 (RIA Novosti), Maria Raspopova - If Scotland chooses to go through a painful divorce with the rest of UK, the consequences that will bring for the Oil and Gas Industry of the country are highly debatable, and although geographically Scotland owns the majority of UK’s oil, the gas industry is almost entirely on England’s side, which, together with a developing shale oil sector, poses a serious threat to Scotland’s economy.
Having looked at the map of North Sea oil and gas fields, one could notice that most of British oil is extracted off the coast of Scotland, while most of gas fields lay far to the south - off the coast of England. However, there’s no maritime border between England and Scotland – the entire London-controlled portion of the North Sea is legally referred to as the United Kingdom Continental Shelf (UKCS). Therefore, the UK gas production will largely remain unaffected in case of Scottish independence. As for oil, there are several complications, which have already created a certain amount of indefiniteness among the global energy enterprises, mainly BP and Shell, Reuters states.
First of all, the independence proponents have been claiming “It’s Scotland’s oil” since as early as 1974, writes the National Post. Thus, some of the Scots have been feeling “robbed” for nearly four decades, which further fans the flames of ethnical disaffection and strengthens the pro-independence tendencies.
Second, as stated by Time, the overall UK oil production is on the decline. Historically, the UK oil production peaked twice – in 1985 and in 1999, having been decreasing steadily thereafter due to the supposed depletion of the North Sea oil reserves, which is also officially admitted in Norway – the largest North Sea oil producer. This is also one of the main reasons of the recently active development of nuclear and alternative power in the UK and Scotland, in particular.
Third, there is a huge problem with demarcation of the UKCS in case of Scotland’s “yes” vote. For instance, the maritime border between Scotland and the rest of UK can be easily projected as the current land boundary continued into the sea. However, the islands of Orkney, Shetland and the Western Isles, now part of Scotland within the UK, have repeatedly expressed their desire to stay with London if Scots vote “yes”, says Telegraph. The thing is, most of the UK oil is extracted off the shore of the aforementioned islands, which makes them strategically important. If Scotland cedes, Shetland and Orkney are to have their own referenda straight afterwards – and are likely to remain with the UK. Shetland today produces 50% of the would-be Scotland’s oil, as reported by the Blade.
Fourth, the pro-independence Scottish National Party (SNP) has officially been stating their intention to make Scotland “like Norway” by raising oil taxes and creating a sort of a “fund of national well-being” in order to ensure a higher per-capita GDP for their nation. These plans are likely to badly shaken the oil companies since no one would be glad to pay more taxes in deteriorating business conditions.
What consequences could Scottish independence induce on the global oil markets? As reported by Bloomberg, the energy giants Shell and BP have been repeatedly voicing concern not in relation to the possible independence itself, but to the risks created by the indefiniteness which surrounds the whole process. The investment in the UKCS is now on the rise, having reached about $20 bln in 2013. However, the SNP plans to raise taxes and the overall lack of clarity may disrupt the influx of capital in case of Scotland secession. BP and Shell have already stated that SNP fiscal planning is based on over-optimistic estimates of how much oil would the independent Scotland have. Therefore, Scottish separation could heavily damage the North Sea oil production, which would cause a short-term rise in global oil prices. Houston Chronicle also wrote on these risks recently.
The UK energy sector is not likely to suffer negative consequences even if Scotland separates. Firstly, as mentioned before, all of the off-shore gas production stays in the UK. Secondly, as reported by British Geological Survey (BGS) in late-2013, northern England contains large amounts of shale oil. The development of these reserves would be rapid in case of Scotland’s “yes” vote, as French energy enterprise Total is already in the midst of licensing process. Therefore, even if Westminster loses some of its North Sea oil, those losses would soon be made up for with the shale oil. Thirdly, the recent reports of Shetland and Western Isles extensive oil reserves and the desire of these territories to remain with the UK suggest that Scotland is not getting as much oil as they would fancy.