WED AFTERNOON: PROFITS OF OIL & GAS

Audio recording of Hendry’s presentation and discussion

Charles Hendry MP (Conservative)

Former UK Energy Minister 2010-12

oil1

Has found Aberdeen one of most inspiring energy cities

Energy needs to be part of wider range of policy to ensure security of supply, low carbon and affordable for consumers

Benefits from industry go beyond profits, include global market in subsea being managed by Aberdeen > impact on wider work across UK in finance, design etc.

But distinguishes short and long term benefits – in long term, UK can only maintain position if investment

  • world awash with hydrocarbons – little discussion now of “peak oil” – and companies will go where opportunities
  • not just about profitability, also about ‘comfort factor’ including good educational and health systems to attract leaders in industry to UK, as well as favourable tax regime

Countries where resources depleting very different to countries where abundant

  • where depleting, as in UK, possible to stretch out tail but only with right policies: he did issue more licenses during his office than any time since 1960s > shows development of technology
    • now with trillion pounds of debt and now net importers, no possibility of UK building up sovereign wealth fund that can see in other countries
  • in Kazakhstan, where abundant
    • clear roles in local labour e.g. guaranteed proportion of Kazakh workers – couldn’t possibly do this in Aberdeen
    • even though Kazakhs still need to work with international companies – and last week he was in Kazakhstan talking about how to build ‘Aberdeen in the Caspian

But even in wealthiest oil & gas countries in world, looking away from hydrocarbon, e.g. in Kazakhstan looking at nuclear; Norway uses almost none of own gas for electricity

> future needs to be combination of both oil & gas and renewables

What companies want is predictability >need for greater cooperation, as opposed to tax policy in recent years

  • but now sharp increase in profits, which bodes well
  • replacing our UK regulations with European ones would have been dangerous

Cooperation is important – says this against background of Independence debate

  • he worked together closely with Fergus Ewing in areas that not reserved, such as training
  • all political parties agree on importance of industry
  • Ed Davey has asked to ensure more local content, so that more jobs and benefits going to national companies rather than international

Referendum causing uncertainties > all politicians need to minimise that uncertainty

  • uncertainty about tax regime, for example
  • need to answer those questions now, so people have clarity about what to expect

Scale of investment challenge enormous, especially in non-hydrocarbon sector

  • but process of change – technologies will be different in 20 years time
  • challenge of how to connect all up

Discussion

Simon Pirani

  • on one hand, UK government have offered political asylum to Kazakh billionaire wanted on fraud charges
  • on other hand, UK government has made no response to the arrest and torture of Kazakh activists

> Charles Hendry: Kazakhstan is facing challenges, and he believes that best way forward is not by condemning the Kazah government but instead greater engagement, which comes from UK companies investing in skills, universities offering scholarships, etc.

Steven: why saying so much money coming in and yet would not be  enough for Scottish sovereign wealth fund?

> CH though not decided how debt would be shared out in case of independence, amount of money coming into Exchequer will only make dent in public debt: not to assume that could simply use for fund

Jonathan Wills

  • surprised to hear anti-Euro line in relation to health & safety regulator
  • also that government setting price on cable to national grid (?)

> CH

  • onus in UK on operators in area of safety etc., while elsewhere in Europe, just tickbox approach
  • agrees that need to rebuild national grid in order to match up suppliers and consumers

Sanjay, oil & gas engineer and lawyer: shock of tax rise 2 years ago > how to maintain stability for marginal fields?

> CH if tax regime is wrong, people walk away; on other hand, some companies still making more than ever dreamt possible

> CH on shale gas

  • no appetite from DECC for going forward without strongest protection regime imaginable
  • immense export capability (to Europe) here vs. US, which means won’t get same drop in gas prices as in US

Nick: response to Simon Pirani said nothing about deaths of strikers etc.

> CH agrees should be condemned, though Kazakh government itself recognizes damage that done

Adam Boggin, medical student: why does CH say that  production would stay here if no longer economical?

> CH North Sea lifespan much longer than expected though yes seeing decline; but still many people working here would prefer to stay  because live here, children at school here, etc.

Audio recording of McLaren and Cumbers papers and discussion

John McLaren

Economic Consultant, Centre for Public Policy for Regions, Glasgow U

Because production falling in North Sea, in real terms Scottish economy has been dragged down; but because price of oil rising, in cash terms economy has been growing

> need for both cash and real terms measures for Scotland

None of this is debated in Scotland presently: his recent CPPR papers on topic have had no response from politicians – need for more sensible debate

  • on the whole, we retain taxes but profits going overseas > this makes it unlikely that Scotland would really become 7th richest county in world, as nationalists claim, since most of profits would still be going overseas
  • same is true of whisky, financial services etc. much of which is no longer Scottish owned

On balance of payments, looks on surface like Scotland would have positive balance of payment, but positive trade from oil would end up going overseas; similarly, transfer from rest of UK would disappear

  • again, difficult to discuss in detail because don’t have own current account, and figures thus not there to be collected
  • Norway different, for a start in that much of industry owned by state, so less remitted overseas

Scotland’s fiscal balance

  • around 6% GDP worse than ROK though next year will be in similar position to ROK
  • however, both countries are massively in red – all relative

On oil fund

  • if in red, not clear point of oil fund, since just increases interest on debt

Overall, uncertainty about production, debt projections (which over ambitious for last 20 years) etc. as well as about other energy sources

Andrew Cumbers

Professor in Geographical Political Economy, U Glasgow

Public ownership is alive and well, not only in places like Latin America

  • though in UK seems that establishment don’t like British public ownership, but seem quite happy with French public ownership or Chinese – does business with state-linked companies from those countries

More and more people questioning way that we run our economy: deficit not just in democracy but economic democracy

e.g. Sunday Herald published Jimmy Reid Foundation spread on alternative Scottish economy, which  5 years ago would have been beyond pale

+ SNP has become more and more interested in ‘Nordic model’ in its policy debates

Economist Martino argues need to move beyond distributive justice to tackle core issues of appropriative or class justice

  • appropriating fruits of labour of others, but also land and natural resources – which for Polanyi are fictitious commodities, since were not born as anyone’s property (unless perhaps community’s)

In North Sea: it is clear who has benefited – appropriated surplus – and who has lost out

  • has been driven by UK’s well-established multinational oil companies, which dominate policy fora over any other agency, including unions and local communities (with exception of Shetland)
  • outcome is
    • sharp rise in inequality – most benefit to City of London’s shareholders
    • as well as rapid depletion of North Sea reserves (and in fact, most companies e.g. BP, have been disinvesting in alternative energy)

Scotland has incredible renewable resources, but default assumption at Westminster and Holyrood is that should be managed by private companies (even though very different things happening in other parts of world) e.g. Scottish Power (Spanish owned) operating large windfarm outside Glasgow

Need for radical rethink of how we do things, paying attention to examples overseas that provide alternatives to private enterprise, including variety of forms of public ownership, e.g. Danish example of windfarms, drawing on old mutualist traditions

Discussion

Apologies for missing some questions – I was chairing the session while summarising!

John Corral, Aberdeen City Councillor

  • Charles Hendry spoke of uncertainties > how about changes in Energy Minster?

> CH: politics is most uncertain part of uncertain world!

  • why does UK plc sell off our assets?

> JM post 2007 instead of getting back into economics, politicians remain uncomfortable with economic policy and bankers etc. have re-emerged to shape policy again

Nicholas Ellison, ACC/anthropology

  • will it be easier for foreign multinationals to twist arm of Scottish government?

> AC may be the case, yes; and SNP though trying something different, it is still very ‘business friendly’

Jonathan Wills: 3 years experience of Britoil is hardly enough to argue that nationalised oil didn’t really work – what was problem with Britoil and why is corporate cannibalism better?

Owen: why too late for Scotland to have nationalised oil industry? sovereign wealth fund?

> JM

  • some of brutal things that happened in past had positive as well as negative impacts; may be possible to have sovereign fund but would need to make cuts elsewhere given deficit
  • to Charles Hendry, would consider developing serious policy for public ownership in renewables sector?

> CH argues that should not be public ownership in renewables: wealth funds, companies here and abroad, etc. are prepared to invest in it, with policy framework from government – not need for taxpayers’ money if others ready to invest

> AC replies that just propaganda, bought into neoliberal ideology

ACC Councillor for Torry: asks for clarification about economics of Independence debate

> JM uncertainty about what revenues Scotland would have to spent on public services; now depends on block grant – though not much say in this – while much revenue after independence would come from North Sea, which depends on price of oil etc.

Graeme Macdonald, U Warwick: suggests writing book on renewables democracy, as opposed to Tim Mitchell book on ‘carbon democracy’, since physics are different as well as pollutants etc.

> AC finds interesting

?? question about land ownership: in W Aberdeenshire, little windfarms development because mainly large estates for shooting etc., versus in Don area where smaller farms more likely to pursue community windfarm projects

> AC interesting question though community projects tend to be v small scale; larger windfarms probably owned by large landowners

Sanjay (oil engineer and lawyer): his experience of industry v different to what Andrew Cumbers has portrayed – not just short-termist multinationals etc.

> AC: British companies do have short term outlook in sense of profitability for shareholders

Jonathan Wills: in Shetland, crafting estates were worthless and so bought up by Council, which able to run community windfarms

> AC agrees that interesting example

Audio recording of Ryggvik and Wanderley papers and discussion

Helge Ryggvik

Researcher, Centre for Technology, Innovation and Culture, U Oslo

Powerpoint slides

Picture3

Main argument: Liberals and leftists often want to believe in ‘Norwegian model’ though somewhat fictional

Shows slide of fjord where traditionally dried cod: main political decision now whether to start drilling in that area – slogan used by protestors: “Slow down the pace of extraction. No to drilling in fjord”

Shows graph of hydrocarbon fuels CO2 emissions: though coal is much higher, oil and gas still have significant emissions

  • study suggests that to achieve CO2 targets, need for 2/3 of all hydrocarbons known globally need to stay in ground, i.e. someone has to reduce production: question is who…

Norwegian policy in 1960s was similar to Shetland now: governmental control but also slow pace – fast pace seen as dangerous > need to build institutions, strengthen labour etc. …

  • but from 1980s rapid rise in oil extraction – easy to solve economic problems of period with increase in oil production  – but now oil extraction dropping due to depletion
  • in fact, trebling of oil production since 1980s, which makes fanciful to consider ‘Norwegian model’ – it was made to appear reasonable because government was paying in revenues to ‘oil fund’ but not really reasonable

Production falling now

  • although peak was in 2001, many more people are now working in oil industry, trying to extract more > possibility of collective suicide
  • but it is possible to reduce extraction by 1/3 and still have large oil fund – no need to extract at this rate

Fernanda Wanderley

Professor in Development Studies, U Mayor de San Andrés, Bolivia

80% of Bolivian exports are natural resource… and 80% of workers have only precarious employment (only 20% have healthcare insurance)

  • classic example of export-dependent model, with very low rate of growth

Why has Bolivia been unable to produce social welfare through production?

> different management models:

  • -1985 state model
  • 1985-2005 neoliberal model
  • Since 2005: under state control but dependent on private investment

…but none have been able to break free from

  • non-renewable production
  • poorly integrated with other sectors of economy
  • accompanied by capture and use of economic rents by the state

Unable to build economy

  • on our own industry
  • and on adequate reading of social mandate, provided by free, plural and informed public debate

Liberal restructuring in 1996 brought foreign investment, turning into most dynamic sector of national economy… but did not have  social mandate (legitimacy) necessary to use  tax revenue to fund social improvement

> Morales government in 2006 did come in with strong social mandate, such that government was able to raise taxes significantly, but has been unable to put through structural reforms

Morales has promised

  • high levels of economic growth
  • with economic transformation: strengthening other sectors
  • with ecological sustainability
  • with indigenous territorial rights: must consent to any activity in their territories
  • social equality and juridical pluralism (indigenous legal systems)

But hard to see how will deliver.

Bolivian experience shows important of building social legitimacy on basic of open, plural participation.

Discussion

I have given speakers’ replies to all questions together below. Again, apologies for questions that missed.

First round of questions

Anna Zalik: examples in Bolivia of indigenous sovereignty against corporations?

Nicholas Ellison, anthropologist/Aberdeen City Council: in terms of national development policy, Morales is presented in Western media as quite radical, but from indigenous movement’s point of view, often looks just like capitalist mode of development >not inventing new model: in terms of hydrocarbons, is it just utopia to imagine bottom-up movement?

John Corral, ACC: in Norway and Bolivia, danger of killing goose that laid golden eggs (depletion of herring industry)

  • what is value of Norwegian oil fund? And is it true that Norway owns 2% of worldwide shares? (answer below)
  • contrast of Norway with Bolivia: 0.5% growth unlikely to benefit anyone, even if long-term aims are admirable: is it really possible for Morales to combine all these goals? (answer below)

> Fernanda Wanderley

  • very difficult to make reforms because government has raised expectations so high: mass protest when implements any policy that appears inconsistent with popular sovereignty (see paper on 2010 gasolinazo in pre-conference seminar)
  • in terms of indigenous movement, seen since 2005 that
    • Morales appeals to highland indigenous groups who for long time involved in commercial activities, such as in transport, creating new economic elite
    • Lowland indigenous groups meanwhile suffering violation of territorial rights, e.g. building of road through TIPNIS forest reserve without indigenous consent > mass protest
    • all his promises are in question, though majority still support him – and he has just passed law allowing him re-election

> Helge Ryggvik

  • unlike many industries, is possible to control rate of production in hydrocarbons… given clear facts on climate change, should be clear policy of reducing rate of extraction
  • good strategies to do this include using marginal fields – concentrate drilling in these fields, which also puts pressure on improving technology – while stopping production in most productive fields, until solved climate crisis – which we can do with time
  • Scotland is further along downward curve than Norway, and still more vulnerable to drop in oil price; while at same time huge potential for wind technology – need to build grids which not too complicated technologically, relative to carbon storage

Second round of questions

Mike Martin. Venezuela Solidarity activist: in Venezuela oil & gas profits have been used for health and other missions, as well as building social enterprises… and subsidising petroleum products for other countries of region

Mark Strachan, oil & gas student in Aberdeen: is Helge suggesting that feasible to reduce oil production?

?? Would HR suggest giving Thatcher an environmental award for shutting down coal industry? Is it realistic to reduce production?

> Helge

  • he was recently  in country that just starting to produce and asked why someone from Norway –  county that has got rich from producing oil – was asking them  not to leave their oil in the ground… he understands the objection but, nevertheless, it is something that has to happen
  • he is sceptical about 4% welfare fund (which actually called ‘pension fund’ for political reasons): Helge does not regard this as a sensible way to change the world, much less would he advise others around the world simply to follow suit
  • not that we shouldn’t use oil resources at all >nothing like oil as potent resource and we’ll always find a use for it; we can use it for medicine and other reasons, but we shouldn’t use it in the way we do now.

Fernanda

  • explain that in her view  Morales is not good example of leftist government committed to indigenous rights, social equality etc.
  • …but her doubts are less about his goals than about the actual policy direction
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