UK Government office's oil and gas forecasts 'incredibly pessimistic'

Future oil and gas forecasts by an economic watchdog have been described as "incredibly pessimistic" and could be six times lower than the actual levels, according to a report.     Time:18 Aug 2014

The Scottish and UK Governments have repeatedly clashed over the future of the industry, particularly around forecasts from the UK Office for Budget Responsibility (OBR) on the amount of cash it expects to be raised from the North Sea.

The Scottish Government argues the OBR forecasts are based on a "very low estimate of future total production", while its own figures have been criticised by opponents who claim they are overly optimistic.

In July, OBR chairman Robert Chote revealed the independent body is now forecasting revenues of £61.6bn will be raised between 2013/14 and 2040/41 - down from £82.2bn.

An economic report by business group N-56 now claims the figure could be as high as £365bn if a series of recommendations are implemented.

These include a more competitive tax regime for the North Sea, enhanced local decision making and the creation of a Hydrocarbon Investment Bank to boost investment.

An oil fund should also be established to ensure fiscal stability, it said.

N-56 describes itself as an 'apolitical business organisation', although founder Dan Macdonald is a member of the advisory board for the Yes campaign for independence.

Graeme Blackett from N-56 said: "Since 1970 over £1 trillion in oil and gas revenues have been produced by the North Sea and at least as much value remains to be produced as already has been, presenting a tremendous opportunity for the sector and for Scotland's public finances.

"Scotland is a net contributor to the UK public finances, in part due to our geographic share of oil and gas revenues, and this ensures that our finances are typically healthier than the UK public finances as whole.

"The OBR puts forward incredibly pessimistic forecasts on both barrel price and reserves, largely discredited by industry experts.

"What is clear is these natural resources can be maximised through implementing the recommendations put forward both by ourselves and the Wood Review, delivering considerable surpluses that we would recommend are used to invest in an oil fund to benefit future generations."

The report comes as it was announced that potential oil and gas discoveries off the west coast of Scotland are to be examined in a partnership between the Scottish Government, industry and academics.

Areas including the Solway Firth, the Firth of Clyde, the North Channel and the Sea of the Hebrides will be the focus of the study.

Only around 20 exploration wells have been drilled off the west coast of the mainland, compared to the thousands drilled in the north and north east of the country.

The N-56 report was welcomed by the First Minister.

Alex Salmond said: "This substantial new report from a leading business organisation blows another huge hole in the credibility of the OBR's oil forecasts, especially as it comes just days after esteemed Scottish economist, Professor Sir Donald Mackay, said the OBR's calculations were 'precisely wrong' and 'hopelessly at sea'.

"The report also endorses the Scottish Government's plans to set up an energy fund - something Westminster has consistently failed to do to the great detriment of current and future generations."

A Treasury spokesman said: "Every independent expert agrees that North Sea oil and gas revenues are volatile and will ultimately decline. The Scottish Government's own stats show that over the past two years, North Sea tax revenues were around £5bn less than the Scottish Government's lowest estimate.

"The North Sea is a maturing basin and it needs valuable incentives from the Exchequer to sustain investment, which the UK, with its broad and diverse tax base, is able to provide.

"It is not credible for the Scottish Government to say they would sustain current tax incentives for the oil industry and set up an oil fund, while cutting corporation tax below the UK level and increasing welfare benefits."

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