Scottish Independence referendum has caused years of uncertainty in the oil and gas sector, industry says

What will a Yes vote in tomorrow’s Scottish Independence Referendum mean for the North East energy economy?

Danny Lawson/PA Wire A North Sea oil rig
A North Sea oil rig

The Scottish Independence ballot has been impacting North Sea investment for over a year, according one of the region’s most senior oil and gas figures.

Dennis Clark, chairman of Newcastle-based fabricators OGN Group, believes it has led to delays in hundreds of millions of pounds of potential contracts – and this stasis will be prolonged by a Yes vote.

Mr Clark, who founded supply chain representative group NOF Energy 26 years ago, said: “If there’s a Yes vote then the uncertainty that has been affecting the industry for a year, will continue for at least 18 months until separation.

“Oil companies are fairly pragmatic creatures, they invest in places like Angola, but one thing is certain: they have to be able to assess the risk and then have the confidence to spend their money and know they’ll get a return.

“If there’s a Yes vote then there will be a whole host of questions that needs answers, such as how long will that transition be? Will their assets be nationalised? Will there be an overhaul of the fiscal regime?

“As a result, investment will not go ahead because of this uncertainty, despite what Alex Salmond may say.

“As a company we are already experiencing this. We build new facilities and are a major employer and there are three major field developments we have been interested in for some time that could provide five years’ work, but uncertainty is damaging confidence to proceed.”

Dennis Clark
Dennis Clark
 

But if there is a No vote and come the time when uncertainty over future shape of an independent Scotland has been addressed, he foresees the recent record levels of investment in the sector continuing.

One thing is certain a future Scottish Government will want to recover as much as it can to support its ambitious social welfare programmes.

The UK Government is like-minded and accepted the findings of the Wood Review into maximising recovery of the remaining reserves. This was published in February and says there may be up to 24 billion barrels of oil equivalent remaining.

James Martin, managing director of Newcastle-based Reece Innovation, the research and development arm of Tyneside’s Reece Group, also believes investment will be maintained and encouraged and this will benefit the North East.

He said: “The oilfield service companies will continue to develop new and better technologies and this will undoubtedly play into the hands of North East companies who can develop and manufacture the new technologies that will be needed.”

Dr Martin also believes that with oil and gas set to last a further 30 years, Scotland will be making a big mistake by going independent.

“Long term there is very little shale gas or oil in Scotland. It is all in England and could prove a vital future energy reserve,” he said. “There are also the massive coal reserves, which are mainly in England, and could last up to 200 years.”

On the renewable energy front, Prof Ian Fells highlights how Scottish consumers will have to pay more for green electricity once the hefty UK-wide subsidies are withdrawn. (See opposite).

Quick Hydraulics managing director Andrew Esson
Quick Hydraulics managing director Andrew Esson
 

Andrew Esson, managing director of North Shields energy supply chain company Quick Hydraulics, shares Mr Clark’s concerns over taxes and the economy.

He also has reservations over currency and legislation. Raised in Aberdeenshire, Mr Esson lives in the North East and says he would ‘hate’ to think he came from a different country.

“For a business there are too many uncertainties if Scotland becomes independent. We are growing rapidly in Aberdeen - from a standing start to half a million pounds in a year - and it’s very easy to trade with Scotland.

“There are no currency issues and the tax regime is the same but that may all change if it is no longer in the UK.

“If there trade barriers are introduced I may have to rethink how we do business. We currently have a sales office in Aberdeen but would we then need to establish a manufacturing facility?

“Would we have to establish a new entity? This could lead to additional costs. This is the problem; no one can say for sure what is going to happen. The supply chain for Scotland is spread right across the UK so this would impact thousands of businesses.

“Then there is the fiscal position. Would some of the oil companies move down here if the tax rates go up? It’s not inconceivable.

“What if the EU said no to Scotland, would that lead to panic? You never know what the Scottish Governemnt may do in a moment of panic. They may start favouring Scottish manufacturing through legislation.”

Mr Clark added: “The oil companies are too embedded in Aberdeen to move south but some of the larger engineering firms, which have offices north and south of the border, may shift some work from Scotland.

“The oil companies coming to Newcastle? That would be nice, but I cannot see it. However, one thing I’ve learnt that the oil industry always gets wrong, and that’s predicting the future.”

Stan Higgins of NEPIC
Stan Higgins of NEPIC
 

Stan Higgins is chief executive of NEPIC, which represents over 500 North East businesses in the pharmaceutical, biotechnology, and chemical industry. They are heavily reliant on the energy produced in the North Sea for raw materials and power.

He said: “In the short term there won’t be any significant impact but in the medium to long term it will depend on the differences that emerge between the two fiscal regimes, or environmental levies, and that may impact on investment.”

Harry Bradbury, chief executive officer of Newcastle clean coal company Five-Quarter, highlights how Scotland has a great dependency on the North East skills.

“Parts of the North Sea oil and gas industry depend on the supply chain in the North East and Alex Salmond already acknowledges that, irrespective of which way the vote goes.

“But there may be a problem with how industry sees an independent Scotland. Will they move south from Scotland? In the energy sector everyone will follow where the energy is.

“International and UK companies have traditionally been attracted to Aberdeen and I cannot see that changing in the short or medium term, at least not until North Sea reserves declines significantly.

“However, there is a thorny issue to overcome of the interconnectors between the UK and Scotland and the uncertainty over transmission capabilities. Despite its large wind resource, Scotland depends on the rest of the UK for its power supplies and it will be interesting to see how assertive and independent Scotland will be over these issues.

“Then there is Alex Salmond’s stance on nuclear power, as well as Trident missiles, and with lots of offshore wind sites planned for Scottish waters it will be interesting to see where the finance for these projects will come from.

“There will be a hiatus while they detach themselves from the UK and that will deter investors and could lead to some capacity issues.”

Matt Boyle, president and chief executive officer of Gateshead-based Sevcon, which designs and manufactures controllers for electric vehicles, believes the Scots will make a grave mistake if they vote Yes.

Mr Boyle, who was born and raised in Glasgow, but lives in Morpeth and doesn’t get a vote, said: “The Yes campaign, which is being run by a small and dangerous group of Scottish nationalists, has failed to answer key questions on the currency, financial stability, defence and pensions. Pursuit of power is their ultimate goal, but hopefully the Scottish people will see through them and vote No.

“The truth of the matter is that Scotland can’t stand alone. It is too intertwined with the rest of the UK to do so. If it’s a Yes, then in a few years’ time I can see them wishing they hadn’t, but then it will be too late.”

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