:00:11. > :00:15.Tonight on Newsnight Scotland. As politicians get involved in another
:00:15. > :00:20.spat about oil revenues, we ask if they're all missing the point. Are
:00:20. > :00:24.international oil and gas prices about to fall? And is production
:00:24. > :00:27.about to rise in a way which will have profound effects not just on
:00:27. > :00:30.North Sea revenues but on the renewable energy which is supposed
:00:30. > :00:33.to be the industry of the future? Good evening. The Scottish
:00:33. > :00:37.Parliament spent much of the day discussing how much oil is left
:00:37. > :00:40.under the North Sea. Most MSPs ended up agreeing that it's a good
:00:40. > :00:42.idea to extract lots of it and tax the proceeds. They spent less time
:00:42. > :00:45.acknowledging the climate change implications, and virtually none
:00:45. > :00:49.looking at the global picture of energy production, in spite of some
:00:49. > :00:52.potentially vast changes which are already well under way. Shortly
:00:52. > :01:02.we'll hear some expert opinions - first, Steven Godden has this
:01:02. > :01:08.
:01:08. > :01:12.It seems there's nothing like a splash of North Sea oil to bring
:01:12. > :01:16.out the collegiate spirit in Holyrood's politicians. But exactly
:01:16. > :01:20.a splash, more like the Italians -- billions of barrels under the waves
:01:20. > :01:25.and all the main parties agreed they should be recovered as a
:01:25. > :01:31.matter of priority. Estimates vary, but toil and guests UK estimate
:01:31. > :01:36.that up to 24 billion barrels have yet to be recovered and forecasts
:01:36. > :01:46.from Professor Alex Kane at Aberdeen University suggest oil and
:01:46. > :01:46.
:01:46. > :01:52.gas production will continue well into the 2040s by volume. At
:01:52. > :01:58.current prices, there's the potential of 1.5 trillion pounds of
:01:58. > :02:02.reserves left. Plainly this is an extraordinary potential. With its
:02:02. > :02:06.bright lights and billowing chimney stretching out along the Forth
:02:06. > :02:11.estuary, the Grange Balfe refinery is a dramatic symbol of the size
:02:11. > :02:15.and importance of the industry in Scotland. Oil from the older North
:02:15. > :02:21.Sea fields is pumped along the pipeline before being processed
:02:21. > :02:25.here on its way to market. Recovering as much as possible from
:02:25. > :02:29.these fields is one of the challenges on the horizon which for
:02:29. > :02:33.the Scottish government is a priority. The Energy Minister
:02:33. > :02:38.insists that increasing the rate of oil and gas recovery by 1% would
:02:38. > :02:42.deliver an extra �22 billion in tax revenue. He points to the Norwegian
:02:42. > :02:48.territory where the average rate of recovery is 40% compared to a
:02:48. > :02:53.figure of 40% here. Behind the figures, the practicalities.
:02:53. > :02:58.will never be able to extract all the oil and gas from fields so
:02:58. > :03:02.there will always be a portion left in the ground. It ranges from
:03:02. > :03:07.things like the reservoir conditions to how companies are
:03:07. > :03:14.developing field. It is a result of that that is causing the
:03:14. > :03:17.discrepancy between the UK and Norway. K whether it is training to
:03:17. > :03:22.existing or oilfields or opening up new ones, the uncertainty is the
:03:22. > :03:26.investment required and there's the rub for companies and governments,
:03:26. > :03:32.trying to plan a long-term strategy based on something as volatile as
:03:32. > :03:37.the global oil price. Oil price is driven by market supply and demand
:03:37. > :03:40.fundamentals, but also by global politics and geopolitical tensions.
:03:40. > :03:44.An example recently that caused the price to fluctuate was the arrest
:03:44. > :03:49.in the Middle East. Because these things are so difficult to predict,
:03:49. > :03:53.it makes the oil price difficult to forecast. In the Holyrood chamber,
:03:53. > :03:58.a reminder about the other key plank of the Scottish Government's
:03:58. > :04:02.energy strategy from a lone dissenting voice. Renewables only
:04:02. > :04:07.cut carbon emissions if they replace fossil fuels. We need to
:04:07. > :04:12.reduce demand, not only investment in renewables is necessary if we
:04:12. > :04:14.are serious about climate change, but disinvestment in the high
:04:14. > :04:19.carbon industry's answer it leave the current Minister seems not to
:04:19. > :04:24.agree with that. Since he took this job, I've only ever noticed a fire
:04:24. > :04:32.coming to his eyes when he talks about another 40 years of oil and
:04:32. > :04:36.gas extraction. Entering stage left our techniques like fracking,
:04:36. > :04:40.described as game changing by those who just suggested they could help
:04:40. > :04:44.the US become energy independent by the end of the decade. What effect
:04:44. > :04:48.then on our energy strategy? Scotland's commitment to renewables
:04:48. > :04:53.and hydrocarbons has been firmly declared, now the energy sector
:04:53. > :04:56.must negotiate the peaks and troughs in an ever-changing world.
:04:56. > :05:00.I'm joined now by energy analyst David Hunter, who works for M&C
:05:00. > :05:03.energy group. In Edinburgh is Rob Edwards, environment editor of the
:05:03. > :05:05.Sunday Herald, and in our London studio Professor Tom Burke, whose
:05:05. > :05:07.portfolio of employers has included Imperial College, Rio Tinto,
:05:07. > :05:17.several governments, Friends of the Earth, and the environmental
:05:17. > :05:22.
:05:22. > :05:27.consultancy E3G, which he co- founded. Let stand back and take on
:05:27. > :05:32.board the dangers of oil Fox -- forecasting. There are a massive
:05:32. > :05:36.changes. Explain the scale of some of the stuff going on in America.
:05:36. > :05:42.In North America in particular the potential of shale oil and gas
:05:42. > :05:45.reserves mean that by 2020, potentially, America will be the
:05:45. > :05:51.biggest oil producer and moving towards energy independence. That
:05:51. > :05:55.has already driven a significant decrease in gas prices in America,
:05:55. > :06:02.such as repatriating jobs from manufacturing and China, which
:06:02. > :06:10.benefits the US. For some in America argue that this new way of
:06:10. > :06:13.cheap energy gives America and can thus Canada a comparative advantage
:06:13. > :06:22.in manufacturing to such an extent that they can repatriate factories
:06:23. > :06:26.It is leading to situation that they a reversing terminals, to
:06:26. > :06:33.actually export the stuff to the rest of the world so it has been a
:06:33. > :06:39.game changer for the States, not without environmental concerns by
:06:39. > :06:44.any means though. Presumably in terms of prices, there has to be
:06:44. > :06:50.some knock-on effect. If you have America becoming self-sufficient in
:06:50. > :06:54.oil production which some... In fact I think the International
:06:54. > :07:00.Energy Agency has talked about that as early as 2020, that must impact
:07:00. > :07:05.on prices. It has the potential to. So far, it is limited to things we
:07:05. > :07:09.must consider. America in terms of the gas market, gas prices are low
:07:09. > :07:13.there but still highly here because getting the goals from North
:07:13. > :07:20.America, you can't transported very easily because of the limitations.
:07:20. > :07:26.That is with the turning the terminals round comes in? Yes.
:07:26. > :07:30.wonder what your take is on this, Tom Burke. The Office for Budget
:07:30. > :07:35.Responsibility in the document it put out the company in the Autumn
:07:35. > :07:41.Statement forecast quite a sharp fall in oil prices over the next
:07:41. > :07:47.few years. In fact today in America, the Energy Information Agency has
:07:47. > :07:53.put out its own forecast and is forecasting a drop in oil prices.
:07:53. > :07:56.Do you think that is likely or do you take the opposite view? I think
:07:56. > :08:06.the a be a's track record and forecasting anything is not exactly
:08:06. > :08:09.
:08:09. > :08:14.brilliant so I would be cautious -- be a O B R's. I think the lady who
:08:14. > :08:23.spoke in your package got it right - they will be volatile. One thing
:08:23. > :08:27.you can be confident about is that demand will go on accelerating, the
:08:27. > :08:34.demand for energy. So the policy everywhere is to try to separate
:08:34. > :08:37.the price of oil and gas from the bills that people pay. So that your
:08:37. > :08:43.households and businesses can actually afford to buy the energy
:08:43. > :08:48.they need. So energy efficiency, whatever happens, really ought to
:08:48. > :08:55.be the priority. But there is at least a possibility that the world
:08:55. > :08:58.could be flooded... You say demand will continue to accelerate Park,
:08:58. > :09:02.but one forecast for Harvard Business School forecasting the
:09:02. > :09:08.biggest jump in hydro-carbon production but we have seen since
:09:08. > :09:12.the 1980s. He is, and we have seen periods of boom and bust in
:09:12. > :09:17.people's forecasts -- yes, and we have seen. We have seen that many
:09:17. > :09:23.times before. I would treat them with a pinch of salt. If you base
:09:23. > :09:27.your energy policy on getting the most valued out of resources you
:09:27. > :09:31.currently have and the resources that to control, then whatever
:09:31. > :09:35.happens to the prices, you will be in a good position which is why I
:09:35. > :09:42.think Scotland has been wise to do what Germany is doing in a sense,
:09:42. > :09:47.and putting a much greater emphasis than in England on the renewables
:09:47. > :09:50.because they are things you control yourself. Briefly, David Hunter,
:09:50. > :09:54.one of the things that has been alarming you if you invest in North
:09:54. > :10:00.Sea oil is the stuff that is going on in America you were describing,
:10:00. > :10:07.it is profitable on a low oil price. They talk about $70 a barrel and
:10:07. > :10:13.that is probably limited to the current price of Texas oil which is
:10:13. > :10:18.around 90, compared to 120 in Brent. These new projects would still be
:10:18. > :10:21.profitable if the oil price drop. In the North Sea, some of the more
:10:21. > :10:27.marginal development we are looking at require significantly higher
:10:27. > :10:33.rates of return and a higher oil price for that to be viable. So
:10:33. > :10:38.there are a great deal of uncertainties in terms of the
:10:38. > :10:42.Global Energy Outlook as Tom just mentioned. What we must do his plan
:10:42. > :10:50.on the basis of what we know and we will not accurately predict what
:10:50. > :10:55.will happen to the global energy price in 10, 15, 20 years. There is
:10:55. > :10:59.a great deal of value in looking at the sustainability side but also
:10:59. > :11:04.maximising our own resources, not just renewables, oil and gas as
:11:04. > :11:09.well. This may be positive from the point of view of renewable energy
:11:09. > :11:15.that there are obvious dangers here. If we are moving into an era where
:11:15. > :11:19.we have low air, hydro-carbon energy it also means that the
:11:19. > :11:23.subsidies we are paying to renewable energy a relatively
:11:24. > :11:29.larger and it becomes less clear whether people may be prepared to
:11:29. > :11:35.pay those subsidies? Clearly there is a trade-off between the two and
:11:35. > :11:42.you can't back two horses with all your money. And if we concentrate
:11:42. > :11:48.to look much on a oil and gas, renewables will suffer. The real
:11:48. > :11:54.problem is that hardly anyone raised in Parliament today is that
:11:54. > :12:00.Scotland claims to be a world leader on cutting climate pollution
:12:00. > :12:06.yet if its plans, as they spelt out today, to extract virtually every
:12:06. > :12:09.drop of oil from the North sea go ahead, that will mean 10 billion
:12:09. > :12:13.tonnes of carbon which will completely wipe out any gains we
:12:13. > :12:17.make from saving and blow a gaping hole in the Scottish Government's
:12:17. > :12:22.targets to cut climate pollution. So there is a massive contradiction,
:12:22. > :12:26.I think, at the heart of the Scottish Government and most of the
:12:26. > :12:29.opposition's view on this. They want to be green and combat climate
:12:29. > :12:33.change but at the same time they want to massively boost the
:12:33. > :12:37.pollution that will come from extracting oil. Even the
:12:37. > :12:41.International Energy Agency says that if we want to save our climate,
:12:41. > :12:46.we must keep perhaps a third of the fossil fuels in the ground. That
:12:46. > :12:51.seemed a good idea to me. I was interested in your take on this, at
:12:51. > :12:57.Professor Tom Burke, and possibly a hypocrisy in Scotland and the UK.
:12:57. > :13:02.You were querying whether oil prices would for but gas prices
:13:02. > :13:07.actually are falling, Sutton made in North America and there is an
:13:07. > :13:11.expectation they will fall here -- certainly in North America. Gas
:13:11. > :13:14.fired power stations, being regenerated. Not necessarily
:13:14. > :13:24.compatible with the coalition government's rhetoric about climate
:13:24. > :13:26.
:13:26. > :13:30.change. That is true and if you do not like the idea of what you are
:13:30. > :13:33.seeing, you need to pay attention of what Robb was say because you
:13:33. > :13:39.will get a lot more of that if we do not constrain the amount of
:13:39. > :13:43.fossil fuels we use. And in a sense take us off the oil Hock right away.
:13:43. > :13:53.I am much more sceptical about the promises of ever expanding amounts
:13:53. > :14:01.of cheap gas -- the oil walk. There are more difficulties and problems
:14:01. > :14:06.than often recognised in actually getting these new approaches to
:14:06. > :14:12.shale type oil to work and there is a big trade off that has been
:14:12. > :14:15.mentioned, about the price, between the price of oil and gas.
:14:15. > :14:21.Investment in Gas has slowed down in America because oil prices have
:14:21. > :14:26.gone up. I suspect you will see through next year, gas prices even
:14:26. > :14:32.in the US starting to edge up again. It is very volatile and rob is
:14:32. > :14:38.correct, the more you can do to get yourself out of the addiction to
:14:38. > :14:45.these volatile prices, the better your businesses and homeowners will
:14:45. > :14:49.be. It depends who you are there. Developing gas, it could be argued,
:14:49. > :14:54.in the United States actually will reduce carbon emissions because of
:14:54. > :14:57.their dependence on call whereas I move towards gas here away from
:14:57. > :15:02.renewables would have the opposite effect. Yes except these things are
:15:02. > :15:06.complicated. One of the possible effects of what is happening in
:15:06. > :15:14.America there is, because the prices are going down of gas there,
:15:14. > :15:22.it is releasing more fossil fuels on to the market. America uses more
:15:22. > :15:26.but it does not been others use less. Mr Dover is using -- instead
:15:26. > :15:30.of reducing fossil fuel use, we may be increasing it. To bring this
:15:30. > :15:39.back to the North Sea, you were mentioning some of the more
:15:39. > :15:44.advanced projects require a higher oil price to be viable. How
:15:44. > :15:49.dependent on oil prices... Around 100 and of dollars per barrel, how
:15:49. > :15:57.much do some of these projects depend on then stay at that level -
:15:57. > :16:05.- $112 per barrel. He will looking at some projects at about $90 a
:16:05. > :16:09.barrel. I think you can set a bit of store by the huge investment
:16:09. > :16:12.decisions that some of the oil majors and mid-sized companies are
:16:13. > :16:18.making in the North Sea, West of Shetland are investing significant
:16:18. > :16:23.sums of money for the long-term which suggests the underlying
:16:23. > :16:29.thoughts are that energy will not be cheap any time soon in a global
:16:29. > :16:33.centre. A global oil prices crash, they can cancel the Investment
:16:33. > :16:36.while they are considering it. But if you have put the money in and
:16:36. > :16:43.made the investments, if the oil price falls below way you thought
:16:43. > :16:50.it would be, do you keep going? to a degree, yes. You have seen
:16:50. > :17:00.well prices collapse in the past 15 years -- oil prices and the market
:17:00. > :17:01.
:17:01. > :17:06.tends to be volatile. It over correct in both directions. -- it
:17:06. > :17:11.over-corrects in both directions. The rate that the global energy
:17:11. > :17:18.demand will increase, the reality is we will need more of everything.
:17:18. > :17:25.I need one-sentence answers from each of you on one thing debated
:17:25. > :17:30.for years. Rob Edwards, P coil, we can forget about that? I do not
:17:30. > :17:35.think so. Oil is a finite resource which will run out sooner or later.
:17:35. > :17:41.That is not answerable. Sooner rather than later, Professor Tom
:17:41. > :17:45.Burke? You will run into peak prices more often than people think.
:17:45. > :17:48.Short sentence? I do not think we will hit peak will soon but it is a
:17:48. > :17:52.finite resource. Thank you all very much.
:17:52. > :18:00.A quick look at the front pages for tomorrow. Starting with The
:18:00. > :18:05.Scotsman, it leads on the fact that just it has gone out of business or
:18:05. > :18:12.at least the administrators have been called in for the online and