Oil’s Role in the Scottish Independence Movement

Control of resources is often central to the question of national sovereignty. Oil, composing around 40 percent of global energy demand, lies at the heart of many a peoples’ struggle for independence—look no further than the Kurdish Autonomous Region, South Sudan, or Libya for evidence of its power in geopolitics. But while oil is well understood to be a matter of critical importance in North Africa and the Middle East, countries within the OECD must also consider its power over their economies. Accordingly, as campaigners make the closing arguments for Scottish independence ahead of the country’s September 18 referendum, it is no wonder that oil has been used as a cudgel to win over undecided voters. Oil production is closely tied to national sovereignty because of the remarkably lucrative nature of oil exports. In Scotland, North Sea oil and gas reserves pay more into U.K. coffers than any other industry, according to consulting giant PricewaterhouseCoopers. Since 1970, total North Sea oil production equated to 42 billion barrels (bbl) of oil, which has been valued at $1.7 trillion. In the intervening period since then, the government of the United Kingdom collected $508 billion from tax revenues on these resources. Pro-independence groups say that the North Sea contains enough oil to sustain an independent Scotland. N-56, a coalition of pro-independence businesses, argue that, in conjunction with hydraulic fracturing methods, up to 24 billion bbl of oil could be accessed in the U.K. Continental Shelf. Others have said the group’s high end estimates are disingenuous. Ian Wood, a well-known Scottish oil expert, calculates there to be only 15 and 16.5 billion bbl of technically recoverable oil remaining in the region. Wood lambasted the N-56 report, calling it “one of the worst of many examples of false or exaggerated claims providing misleading information at a crucial time in the debate.” North Sea Production Oil and natural gas production have fallen in the United Kingdom over the past sixteen years. In 1999, crude oil and natural gas liquid (NGL) extraction from U.K. reserves topped 137.1 million tons of equivalent oil (mtoe). Production fell as prospects for North Sea drilling diminished. When the U.K. Department of Energy and Climate Change (DECC) released its 2014 numbers in June, crude and NGL fell to 39.2 mtoe, or nearly 30 percent of 1998 production levels. Natural gas followed a similar trajectory, reaching only 38 percent of the country’s production over a decade earlier. According to the U.S. Energy Information Administration (EIA), most of the United Kingdom’s production occurs in North Sea reserves. Last year, the country produced 0.8 million barrels per day (mbd), of which 90 percent was extracted from offshore resources. EIA reports that the vast majority of the country’s offshore reserves are located in small pockets in the central and northern oilfields of the North Sea. Only one-third of these pockets may contain more than 50 million bbl of oil, according to the EIA. Over the coming two decades, the gap between U.K. supply and demand is expected to widen, according to DECC data. In 2004 and 2005, the country became a net importer of natural gas and crude oil, respectively. And just last year, it became a net importer of all petroleum products. Wood’s report estimates that oil and natural gas production will continue to fall in the North Sea, to as much as 200,000 to 250,000 bbl per day by 2050. Such a scenario would not bode well for a future, independent Scottish economy. A group of influential energy and financial sector leaders has urged Scotland to avoid leaning too heavily on its presumed oil resources, citing increased difficulties in their extraction. BP CEO Bob Dudley said last week that, “the opportunities today are smaller and more challenging to develop than in the past.” In a statement last week, Royal Dutch Shell CEO Ben van Beurden added that Scottish secession from the United Kingdom could only reduce tax revenue, increase oil field costs, and create tougher hurdles to tap undeveloped offshore regions. Should a yes vote succeed, an independent Scotland may have to entice oil and gas industries to expand drilling operations, but just how is uncertain, and both Shell and BP are averse to this uncertainty. Energy and Independence Scotland's viability as a state may hinge on how much oil remains in the North Sea, but it is clearly not alone in claiming a strategic resource in a broader argument for national sovereignty. In northern Iraq, the Kurdish people have operated a self-sustaining state since the days of Saddam Hussein. Greater independence from the federal Iraqi government, coupled with pressure on the Baghdad government from Sunni militants, have provided region’s people with even greater autonomy. The Kurdish Regional Government anticipates that by 2015, it could export up to 1 mbd, which could provide the region significant political clout. More insidiously, the same Sunni militants who call themselves the Islamic State have used oil pirating as a way to finance their operations and claim sovereignty over parts of Iraq and Syria. As the race for Scottish independence enters its final phase this week, estimates over North Sea oil will be a major component of the campaign and conversation. Just how much oil the Scots will be able to tap matters greatly, as it may hint to how long an independent Scottish economy may be able to sustain itself, independent of the United Kingdom.