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Interview

Alex Salmond, First Minister, Scottish Government

Alex Salmond, First Minister of Scotland speaks about his government’s ambitions for the oil and gas industry both within the current devolved set-up in the UK and his vision for the industry should his party succeed in winning independence for Scotland in the referendum put forward by the Scottish National Party in September. 

What at the moment is the Scottish Government doing to promote the oil and gas industry, and the skills and talents that stand alongside it, here in the North East of Scotland?

I am committed to strengthening and supporting the oil and gas industry in Scotland.  The Scottish Government’s approach is one of working with the industry and is built on listening, engaging and responding to the needs of individuals, communities and businesses. In every area of policy, we are strengthening opportunities for partnership so that everyone can benefit from increasing sustainable economic growth.

In 2012, I launched Scotland’s Oil and Gas strategy, developed in conjunction with the Oil and Gas Industry Leadership Group. The strategy sets out an overall theme of maximising resource recovery through a focus on industry led innovation, skills and supply chain growth both internationally and domestically. The focus is now on delivering the strategy with industry, Government and the economic development agencies.

Productive links between the Scottish Government and the oil and gas industry are an essential component of the sector’s development in Scotland. We have established the Scottish Energy Advisory Board (SEAB) for open and informed engagement between Scottish Ministers, the energy industry and other relevant bodies. The Oil and Gas Industry Leadership Group reports to the SEAB on progress on the priorities of the Oil and Gas Strategy. This will continue to provide the apparatus for meaningful discussion of both fiscal and oil and gas policy issues post-independence.

Earlier this year, I announced an investment of GBP 10.6 million to establish an oil and gas innovation centre (OGIC) in Aberdeen. This centre will bring together more than 2,300 oil and gas operators and service companies, 12 Scottish universities and over 450 academic staff and researchers. The OGIC priorities will include enhanced oil recovery, subsea, seismic and reservoir characterisation, decommissioning and health and safety. We believe that this centre will help keep Aberdeen and Scotland at the forefront of oil and gas technology development.

Last year the Scottish Government invested GBP 6.5 million in training across a number of sectors in the energy industry, including oil and gas and renewables through the creation of Energy Skills Scotland. In direct response to feedback from industry, Energy Skills Scotland is not a place based academy but an initiative designed to simplify access to energy skills support across Scotland. Energy Skills Scotland will provide a focal point for contact supported by the wide network of existing skills providers across the energy sector in its entirety to deliver skills solutions now and for the future success of the sector. This major enhancement to existing skills activity will ensure that we have the capacity and capability in a diverse skilled, productive and engaged workforce to maximise opportunities to strengthen Scotland’s overall ambition as a major centre for energy activity.

It is estimated that up to 24 billion barrels of recoverable oil and gas remain in the North Sea, with a potential wholesale value of up to GBP 1.5 trillion. This means that more than half the value of North Sea oil is still to be extracted, which affords Scotland greater choices and chances to strengthen its diverse economy. With oil and gas production expected to rise gradually to around 1.7 million boepd in 2018, this will see the industry continue to make a substantial contribution to tax revenues and to the wider economy for decades to come.

How can the Scottish Government contribute towards enacting the recommendations of the Wood Review?

I warmly welcome the report produced by Sir Ian Wood in his review, Maximisation of Recovery in the UKCS.

Sir Ian estimates that the prize from increased and effective collaboration could be an additional 3-4 billion barrels of oil equivalent over 20 years, which could be worth GBP 200 billion. By addressing the challenges facing the industry and harnessing the opportunities, enormous benefits can be reaped by the industry and in tax revenues. This was recognised in our Oil and Gas Strategy, published in May 2012 and in our paper ‘Maximising the return from Oil and Gas in an Independent Scotland’ published in July last year.

I particularly welcome the proposal to create a new regulator which will govern the North Sea. I share Sir Ian’s view that the industry should finance this body, and since most of the developments in the North Sea and west of Shetland are managed from Aberdeen, undeniably Europe’s oil and gas capital, I believe the only conceivable principal location for the new regulatory body is in Aberdeen. This will provide the necessary skills, knowledge and authority to ensure that we maximise the potential of the wealth of resources remaining in the North Sea.

It is essential that the recommendations are implemented with speed, and that a shadow body be set up rather than await the outcome of primary legislation. We stand ready to assist in the implementation of these recommendations in any way that it can and are equally committed to their full implementation in an independent Scotland.

Should independence happen, what would be the imperatives driving the basic principles of Scotland’s energy policy; particularly those regulating the oil and gas industry; how might this differ from the current status?

In our paper ‘Maximising the return from oil and gas in an independent Scotland’, we set out three overarching principles that we believe should underpin the oil and gas fiscal regime under independence:

  • The fiscal regime must support and incentivise production;
  • There should be long-term stability and certainty in the fiscal and regulatory regimes, including the commitment to formal consultation prior to future reforms, and specific clarity on the fiscal treatment of decommissioning costs; and
  • There are efficient fiscal incentives to maximise economic recovery rates.

In addition, any policy framework in an independent Scotland should ensure that:

  • appropriate incentives are in place to support exploration and field development; and
  • critical infrastructure is maintained and developed to maximise recovery.

Under independence we will control the necessary fiscal and regulatory levers to manage the sector in a way that better delivers for the people of Scotland and our economy. We will support development, maintain stability and provide investor confidence. We will consider how the existing fiscal regime can be enhanced to maximise oil and gas recovery rates, including development in the most technically challenging oil and gas fields.

Careful management of Scotland’s oil and gas reserves will be a key priority for an independent Scotland. We will encourage development in the most challenging oil and gas fields. Unlike successive UK Governments, an independent Scotland will provide industry with the necessary fiscal and regulatory stability and predictability for it to innovate and thrive in a globally competitive environment.

This government believes in active engagement and consultation with industry. That is why we have appointed an independent Oil and Gas Expert Commission to build upon the high level policy principles set out in our oil and gas paper, and to make recommendations in relation to the technical application of fiscal and regulatory policy in an Independent Scotland. I’m looking forwards to receiving the Commission’s report shortly.

Companies investigating how a change in the fulcrum of constitutional of powers might affect their operations will consider political and financial risks, and one key aspect they will be looking for is consistency. What should they expect from the Scottish Government?

Unlike successive UK Governments, an independent Scotland will provide industry with the necessary fiscal and regulatory stability and predictability for it to innovate and thrive in a globally competitive environment. With independence, Scotland will have the opportunity to put in place a regulatory and fiscal framework which supports and incentivises exploration and production and provides long-term stability and certainty for the industry.  Careful management of Scotland’s oil and gas reserves will be a key priority for an independent Scotland.  We will encourage development in challenging oil and gas fields.

We have already confirmed that we have no plans to increase the overall tax burden on the industry and have outlined a commitment to formal consultation before any changes are made to the fiscal regime. This is in contrast to the damage which has been done to investors’ confidence by the numerous adverse tax changes imposed on the industry by the UK Government. Over the past decade there have been many substantive changes to the fiscal regime.

Sir Ian Wood’s report makes very clear that the North Sea has suffered from poor stewardship from the UK Government to date. The final report reiterates the conclusions made in the interim report, that: “Government’s present stewardship model…will not be adequate to manage the challenges the UKCS faces in the future.” It says the current regulator is “significantly under-resourced and far too thinly spread to respond effectively to many of the demands of managing an increasingly complex business and operating environment.”

Our independent Expert Commission will provide specific advice on how an independent Scotland can ensure stability and predictability within the fiscal regime and how it can incentivise continued and sustained investment. The Commission will also reflect on Sir Ian Wood’s recommendations in order to ensure an effective stewardship model is put in place in an independent Scotland.

Despite declining production, investment in the North Sea reached an all-time high in 2013, at over GBP 14 billion. Would you consider this to be the ‘rubber stamp’ of industry confidence in future production in the North Sea, and how do you think government support could better assist sustained investment into the future?

Investment levels in North Sea oil and gas totalled GBP 14.4 billion last year, and the industry intends to invest a further GBP 13 billion this year, a significant investment that is expected to boost production in years to come.

The latest activity survey from Oil and Gas UK states that more than 80 percent of operators predict production will improve this year, testifying to continued confidence in the sector, and the organisation itself predicts a rise in production from around 1.4 million barrels a day in 2013 to around 1.7 million barrels in 2018.

There is wide acknowledgment that Scotland’s oil and gas wealth is an extremely valuable resource that will continue to yield for many years to come, and with investment at current levels, it is clear that operators have continued confidence in the future.

We have been very clear that the Scottish Government has no plans to increase the overall tax burden on the industry, and no changes will be made to the fiscal regime without full consultation with the industry. We will consider options to deliver this engagement framework and guarantee predictability. These could include introducing a statutory procedure for a mandatory consultation period with the industry before making any future changes to the North Sea fiscal regime.

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