Oil rout would have wrecked an independent Scotland’s finances
OBR study shows North Sea revenues would have slumped to a fifth of Holyrood forecast
Scotland's North Sea oil revenues would have slumped to just one-fifth of Holyrood's preferred forecasts in its first year of independence if it had voted Yes, according to an Office for Budget Responsibility simulation using current prices.
The OBR projections, which take into account a dramatically lower oil price than the one used in Scottish government forecasts, highlight how the nation might have been saved from a crisis in its public finances by voting No.
Had Scotland voted Yes to independence, it would now be looking at oil revenues of PS1.25bn instead of PS6.9bn in 2016-17 - its first year as a new country - while facing a deficit of close to 6 per cent of national income compared with a UK forecast of 2.1 per cent.
Paul Johnson, director of the Institute for Fiscal Studies, said the OBR scenario highlighted "the uncertainty and volatility of oil prices ... and their impact on Scotland, which is far more dependent on oil revenues than the rest of the UK".
North Sea revenues are already falling to negligible levels after Brent crude prices plunged from $97 a barrel on the day of the independence referendum to less than $60 last week. Meanwhile, delays to investment projects are forcing the government to consider cutting taxes further in an attempt to stem a slide in new exploration.
The oil price collapse is partly blamed on higher shale oil supply from the US, and Opec output that has exceeded estimates. Ali al-Naimi, Saudi Arabia's oil minister, has called the $60 a barrel mark temporary, while other ministers have said it will be months before prices stabilise.
Professor Alexander Kemp of Aberdeen University said an oil price below $70 a barrel in the longer term would damage prospects for future Scottish oil extraction. He forecast the lower price would mean the number of probable new oilfields over the next 35 years would more than half from 188 to 85. "Clearly, tax revenues will come right down," he said.
The OBR published the simulation of oil revenues in July on different price forecasts. The most pessimistic scenario assumed crude prices higher than those today with $77 a barrel in 2015-16, but following a path similar to the current oil futures prices with a $75 a barrel price in 2018-19.
Under this scenario the OBR forecast that between 2014-15 and 2018-19, revenues for Scotland - 90 per cent of the total - would reach PS8bn. That figure is less than a quarter of the Scottish government's preferred forecast of PS34bn for the revenues it believed it could expect over the same period based on oil prices remaining at $110 a barrel.
Saudis and UAE blame fall on non-Opec countries
Saudi Arabia and the United Arab Emirates yesterday blamed the oil price rout on producers outside Opec and reaffirmed their stance to keep output at current levels, writes Anjli Raval.
Ali al-Naimi, Saudi Arabia's oil minister, said he was "100 per cent not pleased" with the near 50 per cent slide in crude oil prices since the middle of June, but said it was a lack of non-Opec cooperation that was a key contributor to the sharp decline.
"The kingdom of Saudi Arabia and other countries sought to bring back balance to the market, but the lack of cooperation from other producers outside Opec and the spread of misleading information and speculation led to the continuation of the drop in prices," he said at an energy conference in Abu Dhabi, according to Reuters. "Let the most efficient producers produce."
Mr Naimi said for the second time in three days that he was "confident the oil market will improve", but he did not say when.
Speaking at the same gathering, Suhail bin Mohammed al-Mazroui, the UAE energy minister, said that one of the principal reasons for the price falls was "the irresponsible production of some producers from outside Opec".
He called for oil producers to maintain, and not expand, production next year to keep supply and demand in check.
The comments from the two Gulf producers underline their commitment to production targets that stand at 30m barrels a day, despite calls from some poorer members of the cartel to reduce output to bolster prices.
Copyright The Financial Times Limited 2014
(c) 2014 The Financial Times Limited