2007 - 2020

The Case for Nationalising Oil

North-Sea-oil-rig-007For the Holyrood elections the left should focus on what is achievable within the confines of devolution but point to what could be achieved across the UK and within independence.

Taxation powers now allow a full implementation of a local income tax. A progressive income tax could raise a further €2 billion a year in Scotland and £30 billion in the UK. This would do little to offset the impact of the cuts. In Scotland devolved cuts are around £6 billion and Westminster controlled spending cuts another £6 billion.

Additional money could be raised from reducing tax avoidance and tax evasion. The realistic total is £35 billion a year and not the £120 billion wrongly stated by many (see link below). 20% is a probable maximum recovery rate or £7 billion across the UK and £600 million in Scotland.

Not replacing Trident will save £80 billion but this is over 30 years. That is a saving of £2.7 billion a year for the UK and £227 million a year for Scotland.

With Scotland’s public spending deficit standing at £12.5 billion and devolved cuts standing at £6 billion and further £6 billion cuts from Westminster controlled spending, the economic challenge facing an independent Scotland are enormous.
Despite the collapse in North sea oil revenues from £11 billion in 2011/12 to £2.5 billion in 2014/2015, nationalising oil remains the only solution.

Privately controlled oil means production is cut when prices fall and in addition future investment costs have been brought forward and offset against tax payable in anticipation of lower tax rates in a possible in dependent Scotland.

There are still 25 billion barrels of oil in the Scottish part of the North Sea. Under nationalisation, producing one billion barrels a year at a price of $50 dollars a barrel and a $20 cost per barrel still produces £20 billion a year in revenues. The oil price is unlikely to trade much above $50 a barrel with the era of Chinese super demand over, the new shale and sands production and the Iran nuclear deal.

This means that an independent Scotland would have to gradually restore the cuts and it’s deficit while increasing investment through a newly formed National investment bank.This would provide money in projects such as renewable energy, cheap affordable public transport and communal housing projects.

To manage this we would require to borrow money on the financial markets. Scotland has had the power to do this since April of this year – up to £2 billion but a maximum annually of 10% of capital expenditure around £300 million.

Any economic policy for Holyrood should use this borrowing option to reduce the impact of the cuts but also to start creating a credit history for a future independent Scotland. This will pave the way for us creating our own currency and central bank both prequisites for us building an economy under our control.

Comments (32)

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  1. Lochside says:

    Long overdue article. I have always believed that we should nationalise this resource.

    I worked in the North Sea and particularly off Norway. I witnessed in the Flora fjord several Norwegian owned and manned rigs floating down the fjord as the unionised work force took industrial action.

    I watched from my US owned,multi nationally crewed rig as these rigs floated out towards the North Sea.

    As you can guess the workers won the dispute and the rigs were halted. That taught me a big lesson: here was a small country the size of Scotland that owned the oil, the rigs and employed mainly their own countrymen. I worked for Americans with a mainly British crew,but with Irish,Anzacs and only a small majority of Scots.

    It struck me then how wrong it all was. Yet 35 years later nationalisation us still a dirty word amongst many.

  2. Gordon McRae says:

    Norway hasn’t nationalised its oil industry. It has a national oil company that takes a stake, usually a controlling one, in each field. This is so the huge upfront costs involved in these projects can be shared with the private sector cos who come in as partners.

    I don’t see any way we could nationalise without exposing the nation to these development/operating costs, not to mention the cost of court cases from irate operators who feel they’ve been stiffed. For a recent example of this try looking at Argentina’s recent nationalisation. How much did they pay Repsol?

    If we had become independent in the 1970s we could have done what Norway did but not now.

  3. AAD says:

    This article should be spread far and wide. All of our resources (oil, utilities and transport spring to mind) have been given away to overseas interests and to the already rich who channel the money to tax havens. Governments from Thatcher’s time to date have all conspired to take national assets away from those who have a right to benefit from them, i.e. the people of this country (and I am including England, Wales and N.Ireland in this). Scotland would benefit from having plans in place to take charge of our own resources.

  4. sandy ritchie says:

    Not sure about nationalising oil…but definitely nationalise power generation and distribution. Apart from that the article strikes a chord ..especially the currency comment. I’d still vote no though on principle of solidarity with fellow workers in these islands

    1. JBS says:

      Ach, Sandy, go on, vote Yes the next time, you know you want to. Go on. Go on go on. Go on go on go on go on go on go on go on go on go on go on go on go on…

    2. Clydebuilt says:

      “Solidarity with fellow workers on these islands”…… There’s plenty of fellow workers on these islands that want to see Scotland becoming a successful Socialist independent country. Hoping that we would become an example that people in England would vote for.

  5. Mike Fenwick says:

    Raphie … may I invite you to respond to the thoughts that struck me when reading your article.

    Firstly, I assume you are not advocating that an independent Scotland (with the need to create a credit history, that you correctly identify) would appropriate the oil assets involved without negotiating compensation for those from whom it was taken – am I correct?

    If not, and you forsee compensation being negotiated, does that involve the accrual of debt, and assuming it does, it is likely, surely, that the repayment of any such debt would be on a fixed basis, and therefore not perhaps matched by what is undeniably a volatile income stream – how does that affect your thoughts and the figures involved?

    Can we assume that a newly independent Scottish Government has the ability (in what will be hard headed negotiations) to negotiate a satisfactory compensation package, with each and everyone of the pre-existing owners?

    I have in mind the provisions of TTIP, and in particular ISDS which may have come to pass at the time of the negotiations – and as is proving to be the case with unit pricing on alcohol do we also have to factor in the potential legal costs that might arise – either with an individual pre-existing owner or in a class action?

    You may be right in all that you say – but I wonder if nationalisation of oil should be a first priority, or best left until an independent Scotland truly finds its way forward in many other areas?

    Those were the thoughts that came to me – and I would appreciate your additional comments.

  6. Broadbield says:

    I’m not sure Nationalisation is the answer. Much of the criticism of Nationalisation under the Attlee government was that it was really State Capitalism, which became unwieldy and over bureaucratic. It’s also costly, as you have to compensate the private owners – otherwise it’s confiscation, which won’t win any friends.

    Some form of Social Control, involving the State, the industry employees, users and, where appropriate, local communities, may be a better model. I’m in favour of Social Control (and where possible, Ownership, where franchises come to an end) of strategically important industries, such as energy, oil, railways etc. The profits should go to the country not private, and often foreign government, owners. This way we can put the strategic needs of the community first, rather than profits for executives and shareholders.

    An example: the state provided funding for the road network as an investment, but funding for the rail network was seen as a burden. That short-sightedness is now all too evident with much diminished rail network, subsidised by taxpayers as rail companies at the same time pay out large dividends. (incidentally, London gets £2731 per head of transport spending against £5 for the North East (of England) – FT/IPPR)

    1. sandy ritchie says:

      I’d be comfortable with your suggestions…although where national assets were sold to speculators on the cheap I’d be minded to repurchase them on the cheap.

  7. ronald alexander mcdonald says:

    How much would we have the pay the oil companies to nationalise?

  8. OEconomia says:

    There is a problem here with your numbers. The price of Brent crude oil (as of right now) is $43.45 (!). You assume North Sea production costs of $20 a barrel, but in fact they are closer than $40 a barrel on average (see IMF World Economic Outlook), which would leave an operating profit of just $3.45 per barrel on average (or $10 if we assume that the price hovers around this mark for the forseeable future).

    Note that operating costs excludes debt payable and other finance costs, which could easily take us into loss-making territory. Of course, this has a knock-on effect on production, and so on. Essentially oil revenues per head are going to be negligible, barring some remarkable turnaround.

    So quite why we would want to nationalise the oil industry, which would be expensive for the UK, impossible for a devolved Scottish parliament, and unaffordable for an iScotland, is beyond me.

  9. Kev says:

    There are some good and interesting points raised in the article, but there are a lot of elephants stomping around the room also much of which was covered during the ref.

    Things don’t exist in isolation (as was often muted during the indyref).

    1) Nationalizing the NS oil would require compensation, but also massive investment and financing power to renew the aging and removed infrastructure (the oil companies aren’t going to leave rigs just lying around). It’s pretty much a non starter and kind of pointless if the price is so low.

    But Rigs have a 30 year life span and many are due to be decommissioned – here is an area of the industry that Scotland could excel at including onshore dry decommissioning up in Pentland firth. I’ve heard they has been interest in a few sites (including the English NE).

    The other area of comparative advantage is marine/ sub sea service/ drilling etc and high end production. To take advantage of this it’s best not to piss off the Chinese and Americans and others who will of course react in kind to their interests being lost in the North sea and block UK companies from the lucrative offshore and shipbuilding industry. The same goes for Brazil and Australia if their companies are barred from the NS then they may do the same in their fields that are currently booming. Remember, the Norwegian oil industry is NOT nationalised. Instead it created a national oil company – Statoil to compete on the world market. Shell Chevron, all the big guys have licenses in the Norwegian sector also. And Statoil, despite being a state owned oil company is not so different from BP or Shell in that they operate on a profit and shareholder basis. Ditto China Petrol, Sinopec etc (state owned). They still play the market first and last.

    And other non tech services, classification, safety, environment stuff – UK has a head start.

    This is where the future of Aberdeen and Scottish industry lies (especially in sub sea tech as the next big bonanza will be deep sea mining along the thermal vents where there is an abundance of nutrients and consequently precious industrial metals our modern econ relies on – it is also geostrategic as over 80% of land based ore is located in Russia and China. – not sure what the environmental issues are but bet they aren’t rosy. More sea acidification!)

    NS is over in the medium term. It was nice and progressive of the author of this piece to admit the inconvenient truth about the oil prognosis, Iran production (they have lots of cheap oil), US shale, new cheap fields and maturing supply chains elsewhere, high costs and standards in NS making it unprofitable etc etc. Doesn’t amtter how much oil is there if it isn’t worth monetarising. It means some of us on the fence No voters can engage beyond the silly propagandist assertions of the SNP – a new oil boom in the next five ten years? giant fields off Shetland kept secret? Really Mr Swinney?

    Ian Wood is right. Low tax rate and supporting the supply chain comparative advantage (unfortunately for nats this is UK wide.)

    2) Get real and stop all the woolly talk about renewables and the tit for tat arguments:

    The simple fact is that Scottish renewables require a market to sell energy in to grow. Scotland isn’t big enough to underwrite the necessary production and scale – 3 million units/ households. Hence the ridiculous insistence during the indyref that rUK would continue to source to maintain the RO and FIT upon which the nascent industry is funded, made by Fergus Ewing. This is and was a nonsense as we have now seen with this govt who have ended the system. Scotland used to get 35% of subs with only and 8% market share based on a UK wide strategic energy plan. However the prospect of Scotland and a second indyref has made the English and Welsh think twice..why invest billions into infrastructure, inter-connectors, smart grid, if that investment will be in foreign hands in a few years (they clearly anticipate this is a possibility) Instead English and Welsh energy consumers will expect their bills to subsidies their own industries (Welsh tidal pools, Offshore wind on the Dogger Bank) and offset it with Continental nuclear and green energy from Ireland and Denmark (take a plane trip across to Amsterdam on a clear day and see the thousands of windmills below – thanks to two years of stagnation due to constitutional stuff Scotland is behind others) and hydro from Norway. The result being that the renewables industry never gets off the ground unless the Scot govt raises fuel prices exponentially (lots more pensioners in fuel poverty!) Independence or not this is the reality. It is no longer in a Conservative govt or Eng Wales interest to maintain the disproportionate subsidies to Scotland. The indyref killed this.

    This is the reality and these are the things realating to the inescapable interconnection of Scotland and the rUk in economic terms, that the Indy supporters need to solve if they are to persuade others.

    But nationalising the railways is a great idea, as is creating a national investment bank (shame Miliband had all this in his manifesto.

    1. Kev says:

      Oh and as for the borrowing. This is limited by the fiscal agreement/ controls with the bank of England and dependent on the UK for a decent rating and protection. It seems unlikely that the rUK tax payers will accept Scottish profilgacy while they are being cut, yet they are the ones expect to pick up the bill. A tad unfair to your average mancunian whose benefit is lost. Plus if China goes pop, which it may well do, being out in the cold without foreign currency reserves and the possiblity of QE is a scary prospect. Iceland managed because it has 300 000 people, could Scottish govt with a public debt and expenditure (which will increase on indy with the promises of left governments) undrwrite it all?

      We shall see.

  10. John says:

    I’m not sure I agree with you $20 per barrel costs, I may be wrong, but I thought it was higher than that. Some newer fields are running well above $50.

    1. Mr T says:

      I’m not an expert but IMF has UK costs @ around $40 per barrel, hence very little profit with revenues sub $50 per barrel.

      Decommissioning costs for the North Sea assets estimated between $50bn – $100bn.

  11. Dave Millar says:

    For Christ’s sake, before you start messing around with the National economy, read some Modern Monetary Theory. It is essential that Scotland, when independent, has its own currency, rather than trailing after the £ (a mere fiat currency); it adds an extra to the policy quiver.

  12. Celts John says:

    ‘Not replacing Trident will save £80 billion but this is over 30 years. That is a saving of £2.7 billion a year for the UK and £227 million a year for Scotland.’

    Unfortunatley not.

    2.7 billion p.a. is out of 42 billion defence budget, which is 5-6% of the UK budget and just under 2% of UK GDP (which is the agreed spending limit on defence for NATO.) Russia spends 10% GDP on the military just for a comparrision.

    The point being is that getting rid of Trident would save no money as it would be required to be diverted to other defence spending to meet the 2% GDP. This would apply for Scotland’s share if independent. Another SNP porky pie.

    1. Bill Ramsay says:

      I’m no fan of NATO but hardly any of the members of NATO spend 2% , but on to my Questions.
      1. Why spend 2% on defence?
      2. Why the comparitor with the Russians?

    2. jdman says:

      “The point being is that getting rid of Trident would save no money as it would be required to be diverted to other defence spending to meet the 2% GDP. This would apply for Scotland’s share if independent. Another SNP porky pie.”

      NOT TRUE
      All you have to do is ask how much of the money spent on Trident will actually be spent IN Scotland?
      precious little would be the answer, while the same amount of money spent fairly across the UK (which it isn’t currently) on other defence projects such as coastal protection vessels for the Royal Navy which could/should be based in Scotland considering we have no naval vessels to protect the coast of Scotland currently across the UK would see a sizeable influx of money into the Scottish economy providing employment and increased tax returns to the Scottish government.

  13. john young says:

    Didn,t Chavez/Saddam nationalise theirs without too much of a fuss,as far as I know they had plenty to put around.

  14. Kenny Smith says:

    What was also covered in the Indy ref was the relisation by Scots that oil wether there is loads still there or not will have to be run down and alternatives found because we simply can’t keep burning the stuff the way we are at the moment. We have told since the beginning that oil was a short term boom but Westminster has lied and to this day refuses to devolve any control of the taxation of this resource. We are told how insignificant it is to the UK economy as a whole but Westminster saw fit to redraw a sea border to take in 7 oil fields and distort GDP figures. There is an appetite both sides of the border for nationalisation of public utiltys largely because privatisation has not improved services and led to the public bearing the debt but not sharing the profit. When the DSS is being privatised you know nothing will be out the clutches of profiteering private companies and the people of the UK are being softened up for the destruction of the NHS. All the main unionist party leaders stated at one point or another Scotland would be a successful country with or without oil. The UK does not guarantee safety in global markets and the interests of England will always dominate fiscal policy. Scotland will be independent it is only a matter of time, there will be challenges but the broad shoulders of the UK is a myth. Quickly on trident if the money that is saved does go on other defense spending then personally spending it on stuff we can actually use would be better for our defense and create more jobs that 3 submarine’s that are no more than big shiny limp dicks

  15. Green says:

    Nobody is mentioning the elephant in the room, which is the simple fact that the realities of climate change mean that most or all of that oil needs to stay where it is.

    A nationalised oil industry might make it easier to end its extraction and retrain all those engineers in doing something useful, like building a renewables industry worth the name, but any government, independent or otherwise, would still have an incentive to keep drilling.

  16. Mike Fenwick says:

    Interesting debate … and informative for me.

    One undoubted feature has to be the volatlity of oil prices … and I wonder if that provides an opportunity for an alternative approach to full public ownership, and what appear to me to be the risks and debts that option may incur.

    We know (I think) that the oil price relates primarily to supply and demand and then the views taken by oil companies as to the levels of profit to be gained (and levels of investment to be made).

    We have seen (again I think) the oil price as low as $27 a barrel and as high as $140 a barrel – and the levels of profit gained or not will follow those ranges. So if public ownership is the method by which we endeavour to secure income to meet the needs of the public – which is what I believe is the intention – do we have a model based on taxation of income and wealth that we could adopt?

    Could we adopt a progressive taxation regime which matched those variations in oil price ranges – with low tax at the low price and an increasingly and progressively higher rate as the price rises?

    A slice of the cake rather than the whole cake – but cut accordingly.

    This is not my area of any knowledge and would be happy to hear from those who have a knowledge of the industry!

  17. bringiton says:

    Human activities essential for sustaining human life should be in public hands or at least under public control
    An absolute priority for the Scottish Government should be taking the “national” electricity grid back into public ownership in Scotland.
    There is now a large body of scientific evidence that burning fossil fuels is now a threat to human life and we should be doing all we can to discourage this activity.
    Our tax money would be better spent than taking something into public ownership which will become a liability rather than an asset in future.

  18. Broadbield says:

    I think it’s pointless to haggle about the minutiae of NS Oil, costs, profits, price etc. I suggest it’s more important to develop an overarching strategy for the social control/ownership of strategic industries, services and utilities. We need a plan: which sectors, how it is to be achieved, costs involved, the composition of the controlling boards and how they will be created, how they will serve the public interest rather than those of executives and shareholders and how they will be managed so that they become vibrant public businesses.

    Such a strategy will be a democratic alternative to the neoliberal model of the mythical perfect market and will ensure that companies first and foremost look after the interests of their employees and customers.

  19. Raphie de Santos says:

    $20 is the average cost of the remaining reserves. New fields will be higher and older fields lower. Given the amount of money the oil companies have made so far – around £700 billion – it is Scotland that should ask for compensation. Remember Norway took 80% control of its oil industry and still owns over 70%. Other countries with natural resources and less expertise have taken control of their natural resources to build their societies – Venezuela, Tanzania.

    I very much see using oil as a transition to a renewable energy economy which helps finance investment and balance our budget but the run down of the oil industry is under our control.

    Most importantly without oil, the early days and years of our new nation will be very challenging economically.

  20. Raphie de Santos says:

    In 2013 59 fields producing at £10 a barrel and 19 at £30 dollars per barrel. The weighted by volume production was around $20 per barrel. The 19 fields produce less per field than the 50 fields (see BBC news story). IMF are referring to these lower producing fields. We would to build up an oil fund taking in surpluses for when the oil price rises as buffer for lower price years and to fund investment and decommissioning.

    We too do not need to be in NATO and not be forced to meet 2% of GDP spending.

  21. MBC says:

    I have also been arguing for a Scottish National Investment Bank on these boards for some time, to provide funding for infrastructure projects such as community owned housing, and also to provide the basis of a future central bank in an independent Scotland. So I am glad others are thinking along these lines. As Raphio suggests, this bank would amongst other things provide the basis of a credit rating for an independent Scotland.

    If we build more public housing it can give us the potential to keep rents low. This then has the knock on effect of keeping public spending low if housing benefit costs are reduced.

    But that greatly depends on how we go about building houses. If we contract that out to a handful of professional developers then costs are going to be high, which in turn will have an effect on rents. A model like the Norwegian Husbank, where the government assisted ordinary people and municipalities to build housing, supplying them with the professional expertise like engineers surveyors and architects who were government employees, not private firms, kept such professional costs far lower than is the case in the UK where these costs are exorbitant.

  22. Mike Fenwick says:

    I have earlier confessed my ignorance, and am seeking information to alleviate such.

    I understand that in the most simplistic of all terms a profit is generated when the costs are less than the selling price – but any discussion on this subject already tells me that we cannot accurately forecast either with any degree of certainty.

    Add to that I cannot yet understand where within the costs so far discussed there has been any inclusion of the interest to be paid on the debt to be incurred to pay compensation to those whose assets and future income streams are to be nationalised.

    Given the variation (at any one time) of a selling price for oil, and then add in the variation of the costs of production per field – it seems to me that the negotiations over what levels of compensation would be paid would be enormously complex, and costly.

    I offered an earlier post with the suggestion of using a highly progressive taxation regime as an alternative.

    Let me now add to that, how best that might be applied – if we are to look at nationalisation, then rather than nationalise a whole industry (where my ignorance, as yet undiminished, just leaves me with worries) –

    – why not nationalise the pipelines for both oil and gas – and apply the tax regime I have suggested to the transmission system?

    Is that an alternative – it strikes me as simpler for a variety of essentially practical reasons – is it worth debating?

  23. Ronnie Morrison says:

    The value of Scottish Oil assets today is pretty nominal – try selling any business with future prospects as dim as these appear to be, so compensation for Nationalisation might be pretty nominal.
    Secondly our experience of decommissioning the open cast coal sites is salutary – companies which are losing money are going to resist paying out billions for this. Indeed the companies might well be happy to walk away and leave the poor old taxpayer with the bill….
    However, the UK government employs specialists to assess Such speculation and we can only hope they are up to the job….
    I am more concerned that 95% of the comments here juggle the financial numbers inside the box of borrowing from markets at rates fixed by rating agencies. Whether it is about oil or any other natural or man made resource we must start thinking outside this box because unless we do we will never be able to afford independence.. Creating our own currency free of debt is the real challenge – borrowing is fir individuals – not for Nations which properly charter and regulate their banking system.

    rfm@ronnimor.plus.comr

  24. kenneth mackinnon says:

    The only oil rich country not able to benefit from its own resources, idle talk, until we regain control of our Country…they mock us for not being able to control our own Media.

  25. David Allan says:

    “For the Holyrood elections the left should focus on what is achievable within the confines of devolution but point to what could be achieved across the UK and within independence”

    So many vote winning policy ideas have emerged from Bella contributors the challenge for the SNP, Scottish Labour and others will be to effectively translate these ideas within the devolved framework to fully utilise all new powers to provide tangible and sincere manifesto commitments.

    Jeremy Corbyn has ignited a new interest and respect for an anti austerity program, the time for talking is over 2016 Manifesto’s must commit to Rail Nationalisation outlining the benefits which would follow from lowering fares – I would suggest greater disposable income for the many thousands of commuters forced to travel to work.

    A credible Public Sector House building program using brown field sites with compulsory land purchase measures. Providing modern green efficient low rental well insulated homes all with compulsory Solar Panels would be a start. Funded by borrowing powers.

    A tiered income taxation system and a new an Council Tax replacement are a must.

    The SNP have talked the talk for years in 2016 ( a five year term ) it’s time to deliver a positive and imaginative manifesto within the powers we will have.

    Demonstrating a vision capable of igniting a new wave of Corbyn style public enthusiasm for a realistic deliverable alternative.

    Sure the SNP should also emphasise that FFA would allow for even more measures to be undertaken.

    Will this be a challenge the SNP can aspire to ? Stronger for Scotland – How.

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