The Point

Last updated: 27 June 2022.

Oil and Gas - a Conference on the Future

Steve Mowat recently attended an Energy Politics Conference in Aberdeen that discussed North Sea Oil and argues it’s time to move away from private ownership and the market economy to public and community ownership, sustainability and environmentalism.

Introduction

In the United Kingdom public investment in roads, schools, healthcare, policing, and postal services provide a basis for peace, justice, democracy, and fortune to flourish. If proceeds of wealth are used for the benefit of society the basics of civil life can be conducted in an enlightened manner. After 1945 the British people realised something. If it’s conceivable to kill millions of citizens in conflict, then it’s possible to build a compassionate society based on crucial collective assets. Make no mistake; public utilities encourage further innovation, and prosperity. These were initially funded on post war American loans for reconstruction. In recent years however a culture of rolling back social investment has gotten us into a terrible situation. This has gone hand in hand with corporate gluttony without a thought for civilization. Queries have started to arise. In the boom days, deregulation was the way forward. This thirty year disregard for the functions of services benefiting the populace undermines the foundations of capital and the nation itself. Like the leaning tower   of Pizza, an empire built on sand, will decade by decade weaken. At some point the structure will collapse. The same is true of a banking and perhaps energy domain build on crumbling social investment.

 

Until now the debate on energy in the UK has its default position firmly in the free market private ownership camp. The resource of oil is a massive new potential collective tool which can be harnessed to expand the welfare state and strengthen energy innovation. Not to mention increase the wealth for Scotland’s future. This is central to a case for democratic control.

 

Conference Speakers –Day 1

I attended a recent conference on the prospect of North Sea oil in Aberdeen. I asked former Conservative energy minister (2010-2012) Charles Hendry if he’d support a nationwide oil fund for the nation’s future. His response was an unequivocal “no”. His reason; “the money is needed to pay for the national debt”. This reaction was remarkable. Considering his master Cameron has just announced plans to sell shares of Lloyds TSB and BoS back to British voters. A swelling of coffers at the exchequer in pre-election bribes looks certain. It’s also likely the oil industry is to remain entirely in the private sector under a UK government. Hendry was keen to state that oil will not last long and couldn’t sustain Scotland when questions of independence simmered among delegates. But his words also showcased oil as a fine example of wealth creation when it came to issues of paying national debt, lining London’s pockets.

Hendry, Cameron’s ex energy minister: ‘Enough oil for national debt, not for a sovereign wealth fund’

 

Indeed bizarrely Hendry went on to contradict himself in response to other queries on business. He promoted the North Sea as a beacon of commercial investment, training and employment, encouraged by low levels of taxation, and lasting until around 2050. This was after he said there was not enough for an oil reserve fund. In his view North Sea oil is both profitable and not profitable. London’s survival may well depend on its North Sea oil fix after reorganisation of failed corporate banks. The pity is that unless Scotland gets independence our biggest national resource looks set to continue along a similar vein of private sector control. Will this be doomed to end with nothing left to show for years of hard work? Westminster’s own commissioned research published by Professor Alan Kemp paint a rather more conclusive picture. Kemp states at current rates of taxation and production oil profits amount to an annual 5-10 billion pounds surplus. Needless to say this money can be spent on generating wealth and sustaining public services in Scotland. The main parties of Westminster won’t contemplate that within the UK, preferring to profiteer in the short term. Certainly it is the only logic which can be extracted from Hendry’s hearsay.

In the meantime announcements of several hundred million pounds of exploration and drilling investments are not uncommon in the north east. Evidence of prosperity in Aberdeen is unsurpassed with oil business centres springing up in across the area. Large numbers of London oil executives are now residents in the streets of Inverurie and Aberdeenshire. Just twenty years ago rural farming was the communities’ economic lifeline. It’s a great pity this is matched by falling public investment, and London’s cry that there’s not enough. When the booms over, there may be little to buffer rising unemployment as the industry declines. Local residents could be left dependent on a broken British welfare ruin. I sincerely hope this analysis is wrong.

Malcolm Webb, CEO Oil & Gas UK largely backed up Hendry’s view point with his total opposition to public ownership of North Sea oil. This is despite the enormous benefits of community tenure and evidence of social investment in Norway.

A small glimmer of hope however may lie a little further northerly here in Scotland, on the small isles of Shetland. Jonathan Wills, Independent Shetland councilor and environmentalist spoke at the conference. He mentioned his tiny islands battle to secure a municipal oil fund in exchange for landing crude on the archipelagos shores. Since 1972 Shetland community sought to benefit from oil. By 1975 the council based in Lerwick had established a basis for a civic wealth reserve. Managed by the Sullom Voe Association it operates for business and the local council. Various delegates testified to the benefits this has had in the far north. Many of them learnt to swim in the numerous community swimming pools built in the area. Delegates had benefited from excellent road building and maintenance initiatives financed through the fund. A recent investment by the association includes the largest proposed offshore wind farm in the world named; The Viking Project on the Sutherland coast.

Councilor Wills stated that the strategy of Shetland was initially aimed at obtaining political influence, sharing revenue and securing environmental safeguards. This was in spite of massive criticism and UK governmental opposition.

An Alternative

Economic consultant John MacLaren began opening up later proceedings of the day following the progressive direction of Shetland council’s achievements. Indeed MacLaren spoke of politics in Norway, which led me to believing a similar model may work for Scotland. Norwegian welfare is strong as the democratic oil company StatOil ensures profit is retained for the nation. Less is sent overseas filling commercial balance sheets.

MacLaren moved on to challenge the notion in which wealth is conceived among nations. By way of illustration let’s take the universally accepted measure of a nation’s standard of living; it’s Gross Domestic Product (GDP). GDP is in fact measured in terms of how much is produced within a nation at any given time. That in itself can be useful, but misleading to assume this reflects living standards. Indeed the GDP of India and Australia are broadly comparable in terms of US Dollar production. We cannot however say both Indian and Australian citizens share equivalent subsistence levels. We could make the same distinctions in the UK using a measure of GDP. Indeed oil extraction may be about to undergo a renaissance in Scotland. But this increased production goes hand in glove with an overall drop in UK living standards. Wages, welfare, money value and a rise in commodity prices.

MacLaren suggests a distinctive approach is needed to understand our nation’s economic health, and to plan for its future. He introduced the term Gross National Income (GNI) to delegates present. He defines GNI in terms of how much a nation earns, not produces. The UK has become indebted and has a reduced GNI. This does not necessarily affect production, thus GDP remains the preferred measure of national financial wellbeing. In bad times GDP can disguise declining GNI. It looks better on paper. If a country sells assets or resources to foreign corporations through privatization this results in lower GNI but not GDP.

MacLaren asks one fundamental question of this accepted analysis; where is civic profitability and sustainability? He may perhaps agree with me that fiscal responsibility is more than corporate tax breaks to increase GDP, and public spending. If we force ourselves to adopt a GNI way of thinking then we can guess the future is bleaker. Income is low in the current situation. This sad fact forces us to view potential benefits of a publicly owned oil corporation, which could boost national revenue and investment. This is glaringly obvious. If you’re not convinced already, then perhaps ask yourself this simple question: What about the last 40 years? If the energy industry has been so successful, why has it been unable to guard against the banking crisis thus preventing cuts in services? Aberdeen is the oil capital of Europe is it not? Without going into figures McLaren may be right to state the prospect of a wealth fund, boosting GNI and defending living standards depends on a 2014 election.

Andrew Cumbers, professor in Geographical Political Economy was next on the platform. His opening words began with the simple statement ‘public ownership is alive and well across the globe’. He stated although the British establishment was opposed to this in British industry it was perfectly content to trade with Chinese and French public utilities. Cumbers went as far to state there was a deficit in democratic and economic democracy in Britain in this respect. Nonetheless Cumbers did clarify that at the Scottish level the SNP were increasingly interested in Nordic models of shared tenure in policy debates. Perhaps this is reflected in the Jimmy Reid Foundations new common weal project.

Cumbers highlighted contrasts between those who had benefited and lost from forty years of oil extraction. Winners included multination oil companies, who had dominated political policy over any other community, union or agency apart from Shetland Council. This has been combined with a depletion of recourses, benefit to shareholders and soaring consumer prices.

Andrew Cumbers on oil: ‘democratic and economic deficit’

The professor then turned his attention to renewable resources, stating Scotland had huge potential. The default position of the UK is this will be managed in the private sector. Despite the fact events are evolving differently across the globe. Cumber’s called for a radical rethink on how we do things. That includes the oil industry and energy sector. He noted years of disinvestment in renewable energy from the likes of BP.

Hendry challenged this view with claims an energy industry should be in the hands of private investors. His gesticulation demonised the prospect of public money use in the sector.

Presentations from the first day covered a variety of topics and random quoting of figures. The climax however was a polarised dialogue on public versus private ownership. With a default position being that energy industry is better off with sole privileged investment in a free market economy. This is where I’d like to pick up on debate and expand on ideas. Referring to developments in the remainder of Europe it’s clear the UK’S policy of exclusive control and profiteering is far from the preferred model.

Shifting the Default Position – Democratic Ownership & Gross National Wealth

At least one energy project should be managed by a democratically owned power corporation. Perhaps in conjunction with a variety of local cooperatives, they could be barred from floating on the stock exchange. Profits could be sustainable and reliable over the long term. Then gone would be the claims wind farms only benefit a few filthy rich entrepreneurs with land enough to tack advantage of state grants. The current system endorses this narrow focus. It follows that in change, days of public plenty may then begin.

Government should likewise be more than simple debate about corporate profit, tax, spending and services. As the representative of the people, it is also mandatory to be a producer of wealth in its own right. By redirecting key sectors of the nation to sustainable and equitable production, a more planned economy can out-perform a capitalist one at its particular game. Oil and energy in general should be a central part of that process. As a matter of fact, in certain cases state intercession is required. Especially when an actor in the market is not yet ready for free competition due to economic and political power of established elites. In short, intervention on a limited scale can be useful in order to protect potential cooperative or state owned players, and encourage new technical development. It is limited intervention within a wider market framework which encourages a diverse economy with many interests and strengths. I and countless others believe that such an approach in the North Sea is only possible in an independent Scotland. The oil industry can play a vital part in this with revenues going towards renewables research and the formation of a public renewables energy corporation. Other benefits not withstanding include guarantees on public investment and wealth creation sustained in the short to medium term through oil production. In brief, an understanding of transitions in political economy is relevant to understand the renewable energy sector, and oil development in Scotland.

This system seems like a mixed idea between Socialism and Liberalism. Free market mechanisms operate in the meantime. But public intervention (protection/stimulus) should be tolerated as it is in the Czech Republic, France, Norway and Denmark. The economic actors consist of private and state companies. The state has rights to assist people create wealth, or to ease the burden of this process at the very least. Britain remains well behind on shifting this debate from a default privatisation perspective. A failure to secure oil profits for the nation is akin to a disaster of not delivering national renewable energy strategies. These matters cannot be left in the hands of a tiny plutocracy. Across Europe political power for change on energy is swelling. Since the collapse of Communism in East Europe a variety of NGOs, community and environmental groups have risen to take real control. With regard to energy policy formation interests are diverse well beyond the scope of a few multi nationals. Anna Zalik, professor of environmental studies, York Canada stated; ‘there is an importance of protecting economy and society to avoid otherwise inevitable consequences of capitalist development, including vagaries of global market.’ This is with regard to all stakeholders, producers, consumers, public sector interest and renewables emerging in the marketplace. She stressed the importance of civic structures in reshaping the context of debate, as has happened in central Europe. The difficulties in which this can be achieved are numerous. An example includes Shells success at barring her from previous conferences on energy as one case in point.

Sullom Voe in the tiny Shetland Islands

 

Summing up

Cries ring out from the establishment that Scotland cannot maintain essential human services at the point of need. It seems ever more likely changes in attitude however can only be achieved in an independent Scotland. A nation which retakes the power to manage its energy affairs and is not left in the hands of a few vested interests. This is unlikely to happen in the UK. Given the succession of pro free market governments over the last thirty years, who adapt mechanism’s for wealth for their own pockets they say are destructive to government. An executive ought not to be just about tax, spending and service cutting. There is also capable of enterprising and socialist planning, which operates for the benefit of all. A public energy and banking partnership need not ever be exposed to the stock market. Excess production ought to be stored and exported. Sustainable and profitable civic enterprise is needed, not to plug gaps but to strengthen the economic system at its very heart. Over and above this the way government operates has to change. Leadership ought to become economically productive, in order to kill of the culture of debt, tax and spend, which limits the scope of our democratic expression.

My final questions are these. Is it time to stand up and claim a new direction? A path of increased community and national planning clearly aids prosperity and innovation, does it not? We are able to see this in Shetland, the Czech Republic, Denmark and Norway are we not? The Governments own commissioned research shows that the Communist states of Alaska, Norway and Kuwait reward residents annually from oil and gas proceeds. Has the time come to unshackle the chains in Scotland and alter the default position from private ownership and pure market economy to reasonable planning, public & community profits, sustainability and environmentalism? Can we overcome the sooth sayers of doom such as Hendry and Webb, who’re happy with the progress of markets over the past thirty years? The answers lie in our hands. It’s time to follow the example of tiny Shetland council. Its David versus Goliath battle with the political and corporate establishment is an inspiration for a nation worthy of passing on to the next generation.