Scraping the bottom of the barrel? The uncertain future of the UK energy industry after the 2015 election

20 May 2015

Before the Scottish independence referendum, Alex Salmond argued that an independent Scotland would benefit from a stronger economy off the back of its oil and gas resources.

Since Scotland voted to remain part of the UK, the price of North Sea oil has plummeted. However, some observers predict that, as global oil prices begin to recover, North Sea produce will soon follow suit. In the wake of "Sturgeon-mania" (and the SNP winning a landslide 56 out of 59 Scottish seats in the 2015 General Election), what does this result mean for the long-term sustainability of a UK energy industry which has for so long been reliant on North Sea reserves?

Despite the outcome of the independence referendum, the election results north of the border highlight the fact that there is an appetite for change amongst many Scots. It is possible that they (like many elsewhere in the UK) have grown tired of the empty platitudes expressed by the so-called 'Westminster political-elite', who only bothered to visit Scotland when it became apparent that independence was a real possibility. Many Scots have become disillusioned with the perceived Westminster tactic of claiming Scotland's best assets (including North Sea oil) for itself, whilst neglecting other areas which are already in decline. This is not unlike the press coverage of Andy Murray, who is "British" when he wins but "Scottish" when he loses. If another independence referendum was held tomorrow, it is possible that the result would be different (or, at the very least, much closer).

One potentially important development is that SNP leader Nicola Sturgeon has (for now) distanced herself from any talk of another referendum on Scottish independence in the near future. However, should she change her mind (which would not be an unprecedented act as far as politicians are concerned) there is a real fear that an independent Scotland could plunge the remainder of the UK into an energy crisis.

There is some evidence that these fears may be unfounded. Whilst North Sea oil production still accounts for a significant proportion of the UK-wide figure, output levels have been declining for a number of years. Employment figures in oil industry hotspots such as Aberdeen are also decreasing, which suggests that the North Sea industry is gradually winding down. This is not a resource that Scotland (or the rest of the UK) should continue to take for granted.

Some experts have predicted that the rest of the UK's energy reserves might in fact offer more long-term sustainability than Scotland's, if the latter became independent. This view is at least in part supported by the recent discovery of potentially significant oil reserves at Horse Hill near Gatwick Airport, which prospector UK Oil and Gas (whose exploration licence has recently been renewed) suggested could contain "up to 100bn barrels of crude". It is also worth remembering that the nascent shale gas industry enjoys significant support in the UK, with MPs recently voting in favour of amendments to the Infrastructure Act which endorse fracking (hydraulic fracturing using water, sand and chemicals to release oil and gas deposits from shale plays) in approved locations. The UK's resurgent nuclear power industry has also enjoyed a recent boost, with EU Competition authorities finding that revised plans to subsidise the construction and operation of the Hinkley Point nuclear power station are compliant with EU rules on State Aid.

Whilst some of us may hope that the SNP's fantastic (and not entirely unexpected) election performance will be a warning heeded by Westminster that results in a greater and more effective devolution of powers to the Scottish people, there remains a fear (however small or unfounded) that future Scottish independence will have an irreversibly negative effect on the wider UK energy industry. It should not be forgotten that the bigger, long-term issue here is the global decline in sustainable energy reserves – a problem that is surely better addressed as a stronger, United Kingdom rather than as two weaker, independent states.

Marc Freedman

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