Scottish independence debate draws in CEOs

September 12, 2014

Less than a week before Scotland goes to the polls over independence, the heads of BP and Shell have made their opinions clear amid counter claims over North Sea oil. 

Bob Dudley and Ben van Beurden, the CEOs of BP and Shell respectively, called for Britain to remain intact and urged caution over oil reserve estimates, backing figures released by Sir Ian Wood, the former chairman of engineering group Wood Group and the author of the recent Wood Review report, which set out how the industry could maximize its potential. 

People living in Scotland will vote on independence on 18 September. How much oil is left in the North Sea, after more than 40 years production since the first barrels were extracted, has become central to the Scottish independence debate, as a majority of the UK North Sea oil fields, and therefore potential tax receipts, are off Scotland. Offshore England are mostly gas fields. 

But, while most agree there are multiple decades’ worth of reserves remaining, exactly how much and when it will be able to be commercially extracted is subject to varying estimates, all of which are subject to future, yet to be seen, circumstances, not least the oil price and technology. 

Earlier this week, Sir Ian said some of the forecasts were highly inaccurate. Sir Ian has forecast 15-16.5 billion more barrels may be retrieved from the North Sea, mainly because of aging infrastructure and increasing costs. This has been challenged by academics who say technological advances make that forecast an understatement.

“Ian Wood is right in his technical assessment that the amount of remaining oil and gas that can be profitably extracted from the U.K. North Sea is a function of price and cost,” Shell’s van Beurden said in a statement, reported by Bloomberg. “As existing infrastructure gets older and output falls, costs will go up and tax receipts will come down.”

“The province is now mature and I believe Sir Ian Wood correctly assesses its future potential,” Dudley has said, according to Bloomberg. “It is important our plans are based on a realistic view of the North Sea’s future potential.”

The UK Government’s Department of Energy and Climate Change (DECC) recently stated that their best estimate of the remaining recoverable potential is 11-21 billion boe, with considerable upside potential, but with much higher associated risks. Industry body Oil and Gas UK estimates the ultimate recoverable potential within the 15-24 billion boe range, says Professor Alex Kemp, of the University of Aberdeen, in a joint study with colleague Linda Stephen.  

“It is important to note that these estimates have no associated time scale indicating when the resources could be exploited. Nor has detailed economic modelling been conducted to assess whether the fields associated with these resources will be commercially viable,” the study says. 

Professor Kemp and his colleagues at the university have conducted detailed financial modelling up to 2050. It suggests that cumulative production in 2014-2050 could be in the 14-15 billion boe range, depending on the extent of success in implementing Wood Review recommendations, regarding production efficiency and access to infrastructure. The Wood Review recommendations could incentivize further field developments resulting in a total plausible range of 15-16.5 billion boe to 2050. 

Included in the assessment are 25 fields currently being assessed for development, 147 discovered fields not yet at the detailed planning stage, and 99 further discoveries, which could result from new exploration up to 2045. 

The Wood Review was commissioned by the UK Government amid falling production rates and a drop in exploration activity in recent years on the UK Continental Shelf (UKCS). The UKCS suffers from high operating costs per barrel and it was hit by a UK Government tax increase in 2011, which took the top rate of tax to more than 80% for some fields. While work is underway to address the tax situation – a review of the fiscal regime was announced recently following Sir Ian’s recommendations – the independence referendum is also believed to itself have damaged confidence, due to the uncertainty it has caused.

BP was among the first to develop fields in the North Sea and is currently investing heavily in its Clair development, which will run through to 2050, and the Quad 204 development, which is a redevelopment of the Schiehallion and Loyal fields, involving a new FPSO, and in which Shell holds a 55% stake in. 

Dudley added: “BP has been in the UK North Sea for 50 years and we hope to operate here for many years to come. BP believes that the future prospects for the North Sea are best served by maintaining the existing capacity and integrity of the United Kingdom.”

According to a survey of IChemE (Institute of Chemical Engineers) members in Scotland, more than 60% disagree with the proposition: “Should Scotland be an independent country?”  Three in 10 indicated support for independence, with 8% “undecided”.

Almost half of the survey respondents (47%) believed that independence would increase the risk of job losses, with less than one in five (18%) expressed the view that employment prospects would improve should Scotland become independent.

Just under half (48%) believe that separation would have a negative impact on investment in the oil and gas sector.  A quarter of respondents (25%) supported the assertion that investment will improve if Scotland votes “Yes” on 18 September 2014. 

Some IChemE members are also worried that business might quit an independent Scotland with 56% of responses agreeing with the proposition that “business is more likely to relocate to other countries if Scotland becomes independent”. 28 % of respondents disagreed with this statement.

Commenting on the survey findings, IChemE’s director of policy and communication, Andy Furlong said: “Whilst the national opinion poll gap has narrowed in recent days, our survey suggests that a minority of chemical engineers in Scotland will vote ‘Yes’. 

IChemE takes a neutral position on Scottish independence, however we are actively encouraging our members to engage with the debate and to vote on 18 September. 

"Chemical engineering matters in Scotland and whatever the ballot result, chemical engineering needs good politics and politics needs good chemical engineers.”