The Scottish oil industry is at a tipping point and needs urgent state support or else fields that could be drilled in the future will be deemed uneconomic and abandoned prematurely, says Gordon Brown.
In a major speech in Glasgow, to be given on Monday, one of his last before stepping down from parliament after 33 years, Brown will say the fall in worldwide oil prices requires the industry to given a rescue plan, or else severe structural damage be inflicted that weakens the entire Scottish economy.
At the most extreme, the state must be willing to take over fields that are under threat of being abandoned, he is to say. He will argue short-term tax reductions for the industry in the March budget are necessary, but so is long-term help to keep lossmaking fields from being closed.
He will say: “This is not a normal downturn where we can automatically expect a full recovery when prices rise. One budget initiative would be to recognise the tipping point we are at – the structural damage that could be done if fields are summarily abandoned – and create a North Sea reserve to maintain and upgrade essential infrastructure and to provide last-resort debt finance for companies who want to keep fields open.”
“In the most extreme cases, to avoid the field being mothballed in its entirety, the government could go into partnership for a takeover of the field. If it is temporarily abandoned, the government should act to ensure that sometime in the future it is possible to come back and exploit the oil”.
He says any government help would not go direct to the operators but instead to keep the infrastructure of the fields open through a mix of public-private partnerships, loans and advance purchase agreements. The deals involving state support would also require financial support being provided by the operators.
Brown is still seen as one of the most potent political weapons Labour has to reduce the appeal of the SNP among male, working-class voters before polling day. Setting out a package that could create 100,000 jobs for young people, he will warn if oil revenues fall to £1bn by 2016-17 this will be barely enough to pay the pension bill of 10 % of Scotland’s pensioners.
Brown is alsosuggesting that falling oil revenues have revealed the disastrous and unsustainable economics that underlay independence.
Labour is in a race against time to persuade its past supporters that it remains the party of change, and that a vote for the SNP will only ensure a victory for David Cameron in the general election. It is also trying to show that the SNP does not have the interests of the working class at heart and is not protecting either public services such as the NHS or the economy.
Browne will argue the oil industry is facing not just cyclical problems due to falling prices, but enduring long term structural problems. He will say: “Over 50 years, until last year, 42bn barrels of oil and gas have been produced. Anything between 12 and 24bn barrels of oil and gas remain, so between two thirds and three quarters of the oil has been extracted.
But what marks out the current state of play is that while the old fields such as Brent are near exhaustion, and their closure inevitable, there are many fields which could be avoidably left behind, undeveloped and valueless. “So we will see an already diminishing-numbers set of fields further reduced by being shut down with a huge cost in returning to them if they are abandoned.
“We need to find a way to maintain operations and to ensure that the resources which do exist, especially in small and marginal fields, can be developed when prices rise again.” He predicts oil production in Scotland will have fallen to 1.3m barrels per day in 2018.
Oil revenues have already fallen from a peak of £12bn to last year’s £6.5bn to an estimated £1-2 bn this year, and perhaps only £1bn-2bn in the year the SNP sought independence, 2016-2017.
Brown will say the Scottish economy cannot rely on the oil industry or manufacturing for much longer and instead say Scotland needs 100,000 new quality jobs and a major housebuilding programme. One of the key foundations of Brown’s “economic revolution” is his plan to create 100,000 new quality jobs and launch a major homebuilding programme.
The Scottish Labour leader, Jim Murphy, ahead of the spring annual conference at the weekend will back the Brown plan, by saying Labour will call time on an exploitative jobs market and introduce a living wage for young people.
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