Scotland’s Oil is back but Nicola doesn’t want it

Rising energy prices could make independence viable and accelerate the transition to renewables

Has mad Vladimir Putin rescued the finances of an independent Scotland? Could be. Rocketing oil revenues, an indirect result of the war in Ukraine, have offered a route to independence that doesn’t involve massive public spending cuts.  Well maybe.

For the first time in a decade, Scotland's spending deficit this year will be less than that of the UK's according to the Institute for Fiscal Studies. A notional deficit of 12% of GDP will be wiped out by oil revenues expected to be £15 billion this year and £21 billion the next. Hydrocarbons are likely to remain a valuable resource for many years thereafter. Most oil and gas is in Scottish waters and would devolve to Scotland were it to declare independence. It's Scotland's Oil once more.

In recent years the GERS (General Expenditure and Revenue Scotland) figures have made depressing reading for Scottish nationalists. Scotland spends considerably more in public services than it raises in taxes. But suddenly Nicola Sturgeon need no longer fear the deficit. Her deputy, John Swinney, has suggested that the finances of an independent Scotland are secure once more.

Of course., this is all based on a temporary spike in world energy prices. Once the Ukraine war is over, oil prices will fall.  Scotland's structural, non-oil deficit of around 7% of GDP will still have to be addressed by an independent Scottish exchequer.  However, this latest energy windfall could make the transition to independence, and also to Net Zero, a lot easier.

It may only be a decade or so until North Sea renewable energy, already 50% of Scotland’s energy use, becomes a viable and highly lucrative resource. Scotland has struck it lucky twice with 40 gigawatts of offshore wind potential, five times what Scotland actually uses.

Moreover, according Graeme Blackett of Biggar Economics, a sometime adviser to the Scottish Government, burgeoning oil and gas revenues may actually accelerate the transition to renewables This is because much of it will be reinvested in offshore wind projects, which are mostly run by the big energy companies like Shell and Equinor. It is a fossil fuel paradox: the more oil and gas now the less carbon in future.

North Sea oil and gas production had been in steep decline over the past two decades as the major fields have been exhausted. But the world has changed and in future there will be much greater concern about security of supply. Never again can Britain allow itself to be reliant on energy imports. The UK government is currently issuing 100 licences for the development of fields that can be brought on stream in around five years. Oil companies are eager to develop fields like Cambo and Rosebank off Shetland and the Jackdaw gas field off Aberdeen.  

The only problem is that the First Minister, Nicola Sturgeon, has said she doesn’t want to develop these fields and opposes any new licences, even as part of a “just transition” . She has agreed to “keep it in the ground” as her coalition partners, the Scottish Greens, like to put it.

The First Minister is a born again environmental fundamentalist who believes that Scotland should not bring any more of the black stuff out of the North Sea, or benefit from revenues from new fields.  She thinks it is preferable for the UK to import oil and gas from countries like Qatar - despite the extra CO2 released by shipping it 7,000 miles.  

This is based on the specious argument that, since oil and gas prices are set by the world market, it doesn’t matter where you get your supply from.  Of course it does matter because it can be turned off. Scottish oil is also less carbon intensive than imports. Above all, the tax revenues from oil companies’ profits - 75% in the UK - goes to the oil producer government. This can be used for social purposes like insulation, instead of oppressing homosexuals in the Middle East.  

Nor does importing liquified natural gas from the United States, as Britain will do this winter, further the cause of Net Zero.  These LNG tankers burn thousands of tons of fossil fuels to being gas extracted by a process, fracking, which the Scottish Government has banned.

It is reckless to rely on dictators like Vladimir Putin, and inflated world markets, for our energy security. Barak Obama recognised this in 2008 when he boosted shale gas production to make the US self-sufficient in energy. As Blackett says, boosting the North Sea oil industry not only helps the campaign for Scottish independence, it accelerates the transition from fossil fuels by generating the investment for green alternatives.

In currying favour with Greta Thunberg, the SNP has dug itself into a green hole from which it will have difficulty extracting itself. But it assuredly will. The SNP is a hydrocarbon party.  Oil is in its DNA. The nationalist's first real electoral breakthrough came on the back of the Scotland's Oil campaign in the 1970s (see poster). Expect a screech of rubber from the First Minister as the Scottish Government learns to love “transitional” fossil fuels once more. Even if that means the end of their unsteady alliance with the Greens.