Yes vote would be ‘fatal’ for North Sea oil and gas, warns Fallon

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The UK’s energy minister has warned that Scottish independence would be “absolutely fatal” for the North Sea oil and gas industry.

Michael Fallon raised fears that offshore firms would begin putting off major investment decisions over the coming weeks and months as September’s historic referendum looms.

In his most significant intervention in the debate, the Conservative minister also predicted that Scotland would become a “zone of instability” after a “yes” vote.

He expressed similar concerns about the renewables sector, and suggested that £1billion plans to lay the longest high-voltage electricity cable in the world between Ayrshire and Wales could collapse.

The Scottish Government dismissed the claims last night as the “height of hypocrisy”, highlighting the Treasury’s “yo-yo” offshore fiscal regime.

Mr Fallon, who was born in Perth and raised in Dundee, has become one of Prime Minister David Cameron’s most trusted lieutenants.

In a exclusive interview in London, the Press and Journal asked him how he squared recent record levels of North Sea investment with repeated warnings that uncertainty caused by the referendum would damage the industry.

He predicted that the evidence of the impact was imminent, saying: “Business, I think, tends to think these things are a long way off but when they get to within a year, then boards start to say ‘well we’ll just wait a while and see what happens’. That’s beginning to really worry me.

“I’m concerned about some of the immediate investment decisions from projects that have already had initial authorisation. I don’t think anybody in Aberdeen wants to see the oil industry put on hold.”

The Sevenoaks MP added: “It would be absolutely fatal to convert a very stable fiscal and political climate into a zone of instability, and that’s what really worries me.”

He claimed taxes would have to be increased or spending slashed in an independent Scotland in order to cover the estimated £30billion bill to decommission North Sea fields and platforms.

He said: “We would obviously be extremely worried about the future of decommissioning, how that’s going to be financed. Because the sheer cost of the tax relief that’s required for decommissioning could not be met by a Scottish treasury, without huge new borrowing or extra taxes.”

Casting doubt over National Grid and Scottish Power’s plans for a 260-mile cable from Hunterston to north Wales, Mr Fallon said: “These are examples of huge infrastructure projects that would have to be rethought, as to who is financing them, where is the gain? At the moment we do these on a United Kingdom basis.”

He added: “We finance and purchase Scottish renewable electricity. Scotland gets 40% of the renewables budget, with 9% of the population.

“It would become very hard to persuade the English and Welsh taxpayers to finance investment in Scottish renewables.”

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A spokesman for Scottish Energy Minister Fergus Ewing dismissed Mr Fallon’s claims last night.

“This is the height of hypocrisy from Michael Fallon given the amount of uncertainty that Westminster’s yo-yo fiscal regime has caused for the offshore industry in recent years,” he said.

“North Sea oil and gas will be a massive asset for an independent Scotland, and that wealth will be properly used – unlike the way in which successive UK governments have squandered it.

“As for renewables, the reality is that Westminster will need an independent Scotland’s huge green energy reserves to help keep the lights on in the rest of the UK.”

Wood review key to new ventures

Sir Ian Wood’s review of the oil and gas industry offers the solution to the North Sea’s “exploration crisis”, the energy minister said.

The Aberdeen-based businessman was appointed by the UK Government last year to draw up a series of proposals to maximise oil and gas recovery, and he is poised to publish his final recommendations within the next month.

Trade body Oil and Gas UK warned last week that “urgent” action was needed to address a dramatic recent drop in North Sea exploration.

Asked if he accepted the warning, Mr Fallon said: “Yes, if you look at the exploration figures, Oil and Gas UK are right to point to declining exploration.

Michael Fallon visits the Total Elgin platform
Michael Fallon visits the Total Elgin platform

“We’ve had a huge amount of investment in existing fields, and the answer here is to improve production efficiency and to enhance field recovery, through the Wood review.

“It’s literally weeks away, publishing the final Wood review, where we will move to a slightly more ‘de registre’ model of block management, so that companies will be encouraged to extract more from their licences, to work in collaboration with other companies, to look at their infrastructure needs as a whole, so they’re slightly more managed.

“It will be more like the Norwegian and Danish model. Companies are going to be encouraged to incentivise their efficiency.”

He also acknowledged that the industry was lobbying for new exploration tax breaks in the forthcoming Budget.

“They make their case to the Treasury. We support it where we can. That’s part of the normal Budget process, which is going on at the moment,” he said.

Meanwhile the minister has also rejected claims that he is a “part-time” energy minister.

Last month, Mr Fallon – who is also the business minister – was appointed “Minister for Portsmouth”, to help the city following the loss of shipbuilding jobs.

Concerns were raised that he could lose his focus on North Sea oil and gas.

He said: “I’m full-time energy, I’m full-time BIS (business, innovation and skills). Some days I’m in both departments twice.

“This is a one-off decision for Portsmouth. It doesn’t mean I’ll be spending any less time in Aberdeen.”

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