North Sea Oil and Gas Revenues
To ask the Scottish Government what its response is to the finding in the report by N-56 that North Sea oil and gas revenues could be six times higher than the Office for Budget Responsibility has forecast. (S4T-00786)
The N-56 report is another that highlights the shortcomings of the United Kingdom Government’s and the Office for Budget Responsibility’s oil and gas forecasts. It comes just a week after the esteemed Scottish economist Professor Sir Donald MacKay said that the OBR’s forecasts were likely to be “precisely wrong.”
The outlook for the North Sea remains positive. Investment is currently at record levels, which, although it has reduced tax receipts in the short term, is expected to boost production by approximately 14 per cent by 2018. If production and investment trends follow the industry’s own forecasts, Scottish receipts could increase to approximately £7 billion in the coming years.
In addition to the taxes that are paid on oil and gas production, North Sea oil and gas companies pay a range of other taxes and support more than 200,000 jobs in Scotland. Furthermore, with international sales from Scotland’s oil and gas supply chain of £10,000 million in 2012-13, international activity now accounts for more than half of total oil and gas supply chain sales from Scotland.
I am sure that the minister will join me in welcoming the report’s endorsement of the Scottish Government’s plans to set up an energy fund. Given that Westminster has failed consistently to set up an energy fund, does he agree that the only way to ensure that current and future generations benefit from Scotland’s vast natural wealth is a yes vote next month?
Yes. It is encouraging to see that the report to which Maureen Watt refers endorses the Scottish Government’s plans to set up an energy fund, which is something that successive UK Governments have failed to do, to the regret of some of their former members, at least in the Liberal and Labour parties.
Norway is a great example. By fostering a stable and predictable fiscal tax regime, it has not only developed a very strong oil and gas sector but amassed a fund that is now worth £522 billion and owns more than 1 per cent of the world stock market. I was interested to learn that the Norway oil fund’s most recent investment has been to purchase large sections of Mayfair, including Savile Row.
As the N-56 report says, and as Donald Mackay—as the minister mentioned—has said, the OBR forecasts grossly underestimate the value of Scotland’s oil. Does the minister agree that, given the increasing scepticism from a range of respected commentators, the OBR’s forecasts have lost all credibility?
I am not sure that the forecasts ever possessed much credibility, so they cannot really lose it. It is clear that the OBR is out of step with the industry. Sir Donald Mackay is the latest expert commentator who has expressed that view. In fact, he dismissed Danny Alexander’s claims about North Sea revenue projections, stating:
“If Danny looks at this he might conclude there is no hole in the Scottish government’s oil predictions but there is a mountain of black gold missing from his.”
Alex Kemp has estimated that, rather than the 10 billion barrels of oil that it is anticipated will be produced in the next couple of decades, the figure is likely to be 15 billion. Most ironic of all is the UK’s support and espousal of Sir Ian Wood’s analysis, which says that if the right policies are pursued over the next 20 years, there will be an additional £200 billion. On the one hand, the UK endorses Sir Ian Wood’s analysis entirely, thereby committing it to that extra revenue; on the other, its own Government forecaster denies that that is going to happen.
I have selected three topical questions, but time is tight all afternoon. I will do my absolute best to allow as many supplementaries to those questions as I can, but I make a plea for brief questions and brief answers.
Has the minister compared the N-56 report with the report from the carbon tracker initiative, which has also come out this week and which finds that capital investment in major projects west of Shetland will depend on the price of oil being $20 a barrel higher than the price of Brent crude today? If so, how does he square the findings of those two reports?
I met BP just recently—yesterday, in fact—and we had a very interesting and useful discussion about its Clair ridge project to the west of Shetland, which is going ahead.
Alistair Darling said:
“Right from the start the Tories used the OBR not just as part of the Government but as part of the Conservative Party”.
I would never utter such a partisan comment, but it seems that, although the OBR’s predictions are supported by Lewis Macdonald, they are not supported by luminaries of his party such as Alistair Darling.
The N-56 report paints a medium oil scenario in which, it says, the Scottish deficit would be higher than the United Kingdom’s deficit in 2016-17 and in 2026-27. Does the minister agree with N-56?
We have set out our own projections, which are based on a middle range scenario. The main point to make in this argument, which should not be just about statistics and figures, is that our view is shared by the industry. The pessimistic view that is constantly espoused by the Conservatives and their colleagues in the Labour Party is born of a desire to persuade Scotland that, instead of oil being the enormous asset and source of wealth for future generations that we know it to be, it is somehow a disadvantage. It seems to me that with, for example, this week’s announcement of the increased reserves in the Bentley field, which now stand at more than 700 million barrels, the announcement that projects such as Tormore and Laggan will go ahead, the work involving Kraken, EnQuest, Mariner and Statoil, the redevelopment of Magnus and the investment in Schiehallion in the new floating production, storage and offloading facility—I could go on, but I suspect that it would be unparliamentary to use up any further time—the truth is that oil is a source of enormous wealth to Scotland, and it will be so for decades to come. It will generate enormous wealth but, without independence, we cannot ensure that our citizens will derive advantage therefrom.
The minister criticises the OBR, but is not it the case that the OBR has always overstated rather than understated the oil revenues from the North Sea? Norway has increased tax in order to set money aside in the oil fund. Which taxes will the minister increase? Which services will he cut?
The line of argument that the OBR is wrong but in a different and acceptable way is a new and very curious one. I entirely agree with Willie Rennie that the OBR’s record of forecasting is dire. That is documented—it is there in black and white. One little clue as to why it is so dire was given by Sir Donald MacKay, who stated clearly that one of the three sets of estimates that the OBR has made in its very short life was based on an assessment of the future oil price that it obtained by looking at the futures market prices for oil for a period of 10 days. Which statistician said that a forecast of oil prices for years to come should be based on 10 days’ figures from the futures market? It is no wonder that the OBR gets it so dreadfully wrong.
Can the minister give a view on the opportunities that exist for the exploitation of oil and gas reserves off the west coast of Scotland in the North Channel, in the Firth of Clyde and west of Hebrides? Can he give details of the plans that were announced at the weekend to hold a joint workshop to further investigate those possibilities?
I can confirm that the Scottish Government has arranged for a workshop to be held, which will have the input of very senior academic figures who are experienced and respected in the oil industry, such as Dorrik Stow. Those experts have provided the information that there have been 3,000 drillings in the North Sea west of Shetland and around 20 off the west coast of Scotland. It is obvious from that that only relatively small and modest areas off the west coast of Scotland have been subject to drilling. It is therefore not surprising that people, many of whom work in the industry and have done so for decades, feel that there could be enormous opportunities off the west coast of Scotland and that it is entirely correct to pursue this work, as the Scottish Government will most certainly do, in a careful and forensic way.
Of course, we already have an estimated 24 billion barrels of oil reserves; we know that their value is greater than that of the oil that has already been extracted; and we already have a world-leading and world-beating industry. What we do not have is the Government to pursue, as Norway has done for its country, the correct policies to the immense benefit of Scotland. However, we will get those powers following a yes vote on 18 September.
Russian Ban on European Union Food Imports
To ask the Scottish Government what action it will take to help the food and fishing sectors affected by the Russian Government’s recent decision to implement an import ban on European Union food exports. (S4T-00777)
Last week, I met representatives of the pelagic sector to discuss the potential impact of the Russian trade sanctions. The restrictions are likely to have the biggest impact on our pelagic industry, given that Russia is the sector’s largest market with around 20 per cent of its global exports at a worth last year of around £14 million going there. At the meeting, we agreed a five-point action plan to mitigate as far as possible the impact through targeting alternative market opportunities, growing domestic sales in Scotland and the rest of the United Kingdom, increasing domestic demand for seafood, working with the UK Government to maximise levers such as export insurance and working with the EU to maximise levers such as the banking of quotas.
Of course, other parts of the food and drink industry could also be affected. Earlier today, I met representatives from across the sectors to discuss the potential wider impact and how the Scottish Government and its agencies can work with the industry to find solutions to address any impact of the ban.
I share the very real concerns that have been expressed by the Scottish pelagic fishermen and processors about the disproportionate impact of Russia’s ban on their industry. After all, as the cabinet secretary has rightly pointed out, 20 per cent of mackerel processed in Scotland is exported directly to Russia. Can the cabinet secretary give further details of the extra funding support that the Scottish Government will provide to the sector for additional marketing to domestic and export markets? Secondly, is he able to confirm that the Scottish Government fully supports the Scottish pelagic fishermen’s sensible call to be able to bank up to 30 per cent of this year’s quota, thus leaving the fish alive in the sea, and whether he has made any progress on securing that aim, given that it is vital for it to be in place in time for the mackerel season this October?
On Friday, I met the new secretary of state at the Department for Environment, Food and Rural Affairs in Peterhead to discuss those very issues, and we estimated that Scotland will account for half of the ban’s impact on the whole of the UK. There is, therefore, a disproportionate impact on Scotland and, as I have said, there is within Scotland a disproportionate impact on the mackerel sector, which is why we went to Peterhead and met the relevant companies.
We support the banking of quotas. Ironically, this year of all years and after some hard negotiations a few months ago, there is likely to be a 70 per cent increase in the Scottish mackerel quota, which means that there will be a substantial increase in our quota at a time when one of Scottish mackerel’s key markets is being closed. The situation is therefore serious, and if the fleet is allowed to bank some of this year’s quota for next year, it will help to alleviate some of the pressure. We are making representations to the European Union and, as I have said, we are seeking the UK Government’s support in that.
As for marketing, a trade mission from Scotland is travelling this week to a seafood event in Japan, which is one of the markets that we are keen on targeting and where a premium price is paid for mackerel and other seafood produce. That is why we are targeting these potential new markets for Scotland, and we hope that they will be of immediate benefit to the mackerel sector in particular. A whole range of measures is being taken forward but, in the interests of time, I will give the chamber those two key ones.
You will need to be brief, Mr McGrigor.
Although yesterday’s statement from the European Union about its decision to prop up the prices of fruit and vegetables will help Scottish producers to some extent, does the cabinet secretary agree that because of the cumulative effect that might flood food markets, further action might be required to alleviate the negative effects that the import ban will inevitably have on Scotland’s farmers, especially if the sanctions are to last longer than a year? Moreover, will the cabinet secretary condemn Russia’s recent actions, which are causing not only these problems but many other problems worldwide?
The Scottish Government said that there is good reason for the sanctions that the European Union and the United States have imposed against Russia, but there is no good reason for the tit-for-tat approach from Russia by banning food imports.
As for the wider impacts on the food sector in Europe, there is a substantial impact on countries such as Germany, Poland and the Baltic states. The displacement effect could also have a substantial impact on Scotland’s wider food sectors. If the Russian market is closed to those countries, produce could be dumped on or available in the European market, which could depress prices.
Addressing that is exactly why I just met the wider food sectors before I came into the chamber—indeed, I had to leave the meeting early to answer Jamie McGrigor’s question. In the past hour, we have discussed a range of measures that could help the wider food sectors.
The European Commission’s announcement yesterday was on fruit and vegetables and has limited relevance to Scotland, but we expect further measures from Europe in the coming days. We are saying to the UK Government and directly to Europe that those measures must be relevant to Scotland’s situation.
I apologise to the three members who wished to ask supplementary questions, but I consider that the cabinet secretary covered most of their points.
Currency Union (Discussions)
To ask the Scottish Government what discussions it has had with the Bank of England in relation to a currency union. (S4T-00779)
The Scottish Government welcomes the clear and consistent position of neutrality in the constitutional debate that the Bank of England has taken. Following agreement in March 2012 from Mervyn King, and as set out to the Scottish Parliament by the First Minister in December of that year, a number of technical and factual discussions have taken place with the Bank of England. Following the first meeting between Governor Carney and the First Minister in January this year, it was agreed that the technical discussions in advance of the referendum that the governor’s predecessor, Lord King, inaugurated between the Scottish Government and the Bank of England would continue.
On Thursday, in an unprecedented move, the Bank of England issued a press statement that said, in response to comments by the finance secretary, that
“the Bank ... has not entered into discussions with representatives of the Scottish Government about proposals for future monetary arrangements in Scotland.”
Last Wednesday, the finance secretary said:
“The Scottish Government has had technical discussions with the Bank of England regarding our proposal for a currency union”.
Does he stand by every word of that statement?
As I said in my original answer, following the contribution of Mervyn King in March 2012 and the discussions between the First Minister and Mark Carney in January this year, technical discussions between the Bank of England and the Scottish Government were to be and have been taken forward, as agreed between the Scottish Government and the Bank of England. I confirm to Parliament that those technical discussions have taken place.
The finance secretary is at risk of losing his reputation as a straight talker. I asked him a simple question and he gave me an evasive answer, so I will try again. Does he stand by every word of his statement from last Wednesday—yes or no?
If I could say to Mr Fraser that, if by my choice—
It is a simple question.
Yes or no?
Yes or no?
Oui ou non?
Please stop heckling the cabinet secretary and let him answer.
If, by my choice of—[Interruption.]
Order.
If, by my choice of words last week, I gave the impression that the Bank of England has been involved in negotiating a currency union, I say to Parliament that that was not my intention. I have referred to the technical discussions in Parliament on countless occasions. In an answer to a question from Mr Henry on 26 November 2013, I said that,
“To inform the work of the Fiscal Commission Working Group, technical and factual discussions took place with the Bank of England.”—[Official Report, Written Answers, 9 December 2013; S4W-18544.]
Technical and factual discussions have taken place between the Scottish Government and the Bank of England.
The cabinet secretary will be aware of the governor’s statement to the Scottish Council for Development and Industry on 20 January that
“The Bank of England, which is a financial technocratic institution, would implement whatever monetary arrangements were decided”.
Does the cabinet secretary agree that that neutral position is entirely the right one for the Bank of England to take?
I agree with Mr Gibson. That is exactly what the Bank of England has undertaken as part of the technical discussions that have taken place with the Scottish Government. The stance that Governor Carney has made clear on a number of occasions is that the Bank of England will implement whatever monetary arrangements are put forward and agreed in the aftermath of the referendum on independence.
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