UK oil forecasts 'pessimistic'

North Sea oil forecasts by the UK Government's budget watchdog are "ludicrously pessimistic" compared with the oil industry's "plausible" high-end projection, according to academics.

Treasury Chief Secretary Danny Alexander has warned of the impact of new oil revenue estimates on an independent Scotland
Treasury Chief Secretary Danny Alexander has warned of the impact of new oil revenue estimates on an independent Scotland

Industry body Oil & Gas UK today stood by its projection that there are 24 billion barrels of oil left in the North Sea, following scepticism by two leading oil economists Sir Ian Wood and Melfort Campbell.

The lucrative industry projection, which has been seized upon by the SNP in its case for Scottish independence, has now been endorsed by academics from Robert Gordon University in the UK's oil capital Aberdeen.

Petroleum accounting professor Alex Russell and energy policy professor Peter Strachan said "the ultimate potential of 24 billion barrels of oil equivalent foreseen by Oil & Gas UK appears plausible".

Earlier this week, Mr Campbell, a former Scottish Government oil adviser, said the industry would be "hard pushed" to extract even mid-range projections of 16 billion barrels and that 24 billion barrels is an "aspirational scenario".

He was responding to a warning by Sir Ian Wood, a man First Minister Alex Salmond has hailed as "an authority on North Sea oil and gas", that Scotland could run out of oil in just 35 years.

Chief Secretary to the Treasury Danny Alexander has said the SNP's case for independence is "built on fantastical over-optimistic oil predictions".

But the Aberdeen professors have hailed "the truly brilliant and innovative approach" of the oil industry in exploiting new reserves, in an article on The Scotsman website.

"The healthy 16 billion barrels or so of oil equivalent figures now widely accepted by all campaigners in the referendum debate (apart from the ludicrously pessimistic forecasts from the Office for Budgetary Responsibility) as being economically exploitable from existing discoveries is surely an understatement of the future potential of North Sea production," they said.

"Professor Alex Kemp and Linda Stephen have modelled future production based on oil prices at 90 US dollars per barrel and arrived at future production figures up to 2050 of between 15-16.5 billion barrels of oil equivalent.

"Since current oil prices are higher than 90 US dollars and likely to rise and as improvement in technology continue then 'the ultimate potential of 24 billion barrels of oil equivalent foreseen by Oil and Gas UK appears plausible'.

"This outcome is all the more probable given the truly brilliant and innovative approach of the North Sea oil industry towards finding and exploiting reserves."

They said the recent Scottish Government North Sea - Two Futures report "gives real food for thought" with its observations that Norway has an oil fund worth over £500,000 billion, with accumulated assets worth 172% of GDP, compared with the UK which has no oil fund a net debt at 81% of GDP.

The academics concluded: "There is no question that had Scotland been an independent country in 1975, say, that Scotland would be extremely wealthy now and there would be no national debt."

SNP Treasury spokesperson Stewart Hosie MP said the latest intervention should "put to bed some of the nonsense which is being peddled by the No campaign on Scotland's oil wealth".

"Westminster politicians have been claiming for decades that oil is a curse for Scotland and a blessing for every other country, but people are now seeing through that, and on September 18 have the opportunity of a lifetime to put Scotland's wealth in Scotland's hands," he said.

Earlier today, Mr Alexander warned an independent Scotland faces a basic income tax rate of 30% or 5% cuts to public spending when Sir Ian's oil estimates are taken into account.

This would mean the loss of around 30,000 public sector jobs or 60,000 if health and welfare were protected from budget cuts, he said.

"It undermines the case that the SNP has made, which is built on fantastical over-optimistic oil predictions in order to pretend that somehow in an independent Scotland various policies could be afforded," he said.

"An independent Scotland from day one would have no choice but to make substantial cuts to public services or substantial increases to income tax for people in Scotland."