Comment: How the Scottish vote will affect North Sea investment

While most polls suggest Scotland will choose to remain within the UK – albeit by a small margin – the future for oil and gas investment and production will look different whatever the outcome.

Majors BP and Shell have been the most obviously vocal companies speaking out on the ‘No’ side. They have, in public, briefly argued the case against independence, citing a study that suggests production of remaining oil and gas assets is best placed under a stable tax system and with minimal legislative upheaval.

This is a common narrative from large companies, especially those that benefit from the opportunities provided by a free upstream British energy market with largely light-touch regulation over the last 20 years.

Whether voters accept their arguments or not is another matter. The scenarios put forward over the future of oil and gas after the outcome of the referendum vary wildly depending on which study is quoted, with experts disagreeing partly because of their allegiances.

The Scottish Nationalist Party (SNP) estimates up to £48bn in tax could be generated from oil and gas production between the fiscal years of 2012-2017 based on an oil price of $113/bbl.

This compares with an estimate of £62bn between 2013-2040 from the UK’s Office for Budget Responsibility. A similar long-term study commissioned by the Nationalists quoted a figure of up to £365bn.

The numbers are, of course, estimates and are prone to forces outside the control of any government. Annual UK revenues from oil and gas fell by half during the global recession, which saw Brent crude prices dive.

What is clear is that the SNP wants current market trading arrangements for gas and electricity to remain the same if Scotland does go its own way. It wants to keep a single transmission operator but would designate a new independent energy regulator.

Leader Alex Salmond wants to develop a Scottish energy fund. His party is anti-nuclear, and aims to generate 100% of the country’s electricity generation from renewables by 2020.

While the SNP talks of developing a stable regulatory and fiscal energy regime, it is the prospect of an intervening period of uncertainty and lengthy discussion as independence takes shape that is the largest concern for international companies keen to maximise increasingly marginal assets in offshore Scotland.

So little is known about how the break up would proceed; therefore, it is no surprise that the likes of BP and Shell have 
expressed concerns.

But even if Scotland stays in the UK, it will soon enjoy much greater control over fiscal policy and regulation based on the “Devolution max” policy promoted by the three main British parties in an attempt to stop the popular vote stampeding towards independence.

Assuming Scotland chooses to remain in the UK, it should enjoy these additional powers from early next year. This will also be a source of alarm for major energy companies who will have little time to digest 
their impact.

Whatever the outcome of the vote, the chances are that investment in this productive energy sector will step down, at least in the short term, with the hope that this will not have more damaging longer-term consequences. Edward Cox