09/01/2013 Newsnight Scotland

Tonight on Newsnight Scotland. As politicians get involved in another

spat about oil revenues, we ask if they're all missing the point. Are

international oil and gas prices about to fall? And is production

about to rise in a way which will have profound effects not just on

North Sea revenues but on the renewable energy which is supposed

to be the industry of the future? Good evening. The Scottish

Parliament spent much of the day discussing how much oil is left

under the North Sea. Most MSPs ended up agreeing that it's a good

idea to extract lots of it and tax the proceeds. They spent less time

acknowledging the climate change implications, and virtually none

looking at the global picture of energy production, in spite of some

potentially vast changes which are already well under way. Shortly

we'll hear some expert opinions - first, Steven Godden has this

It seems there's nothing like a splash of North Sea oil to bring

out the collegiate spirit in Holyrood's politicians. But exactly

a splash, more like the Italians -- billions of barrels under the waves

and all the main parties agreed they should be recovered as a

matter of priority. Estimates vary, but toil and guests UK estimate

that up to 24 billion barrels have yet to be recovered and forecasts

from Professor Alex Kane at Aberdeen University suggest oil and

gas production will continue well into the 2040s by volume. At

current prices, there's the potential of 1.5 trillion pounds of

reserves left. Plainly this is an extraordinary potential. With its

bright lights and billowing chimney stretching out along the Forth

estuary, the Grange Balfe refinery is a dramatic symbol of the size

and importance of the industry in Scotland. Oil from the older North

Sea fields is pumped along the pipeline before being processed

here on its way to market. Recovering as much as possible from

these fields is one of the challenges on the horizon which for

the Scottish government is a priority. The Energy Minister

insists that increasing the rate of oil and gas recovery by 1% would

deliver an extra �22 billion in tax revenue. He points to the Norwegian

territory where the average rate of recovery is 40% compared to a

figure of 40% here. Behind the figures, the practicalities.

will never be able to extract all the oil and gas from fields so

there will always be a portion left in the ground. It ranges from

things like the reservoir conditions to how companies are

developing field. It is a result of that that is causing the

discrepancy between the UK and Norway. K whether it is training to

existing or oilfields or opening up new ones, the uncertainty is the

investment required and there's the rub for companies and governments,

trying to plan a long-term strategy based on something as volatile as

the global oil price. Oil price is driven by market supply and demand

fundamentals, but also by global politics and geopolitical tensions.

An example recently that caused the price to fluctuate was the arrest

in the Middle East. Because these things are so difficult to predict,

it makes the oil price difficult to forecast. In the Holyrood chamber,

a reminder about the other key plank of the Scottish Government's

energy strategy from a lone dissenting voice. Renewables only

cut carbon emissions if they replace fossil fuels. We need to

reduce demand, not only investment in renewables is necessary if we

are serious about climate change, but disinvestment in the high

carbon industry's answer it leave the current Minister seems not to

agree with that. Since he took this job, I've only ever noticed a fire

coming to his eyes when he talks about another 40 years of oil and

gas extraction. Entering stage left our techniques like fracking,

described as game changing by those who just suggested they could help

the US become energy independent by the end of the decade. What effect

then on our energy strategy? Scotland's commitment to renewables

and hydrocarbons has been firmly declared, now the energy sector

must negotiate the peaks and troughs in an ever-changing world.

I'm joined now by energy analyst David Hunter, who works for M&C

energy group. In Edinburgh is Rob Edwards, environment editor of the

Sunday Herald, and in our London studio Professor Tom Burke, whose

portfolio of employers has included Imperial College, Rio Tinto,

several governments, Friends of the Earth, and the environmental

consultancy E3G, which he co- founded. Let stand back and take on

board the dangers of oil Fox -- forecasting. There are a massive

changes. Explain the scale of some of the stuff going on in America.

In North America in particular the potential of shale oil and gas

reserves mean that by 2020, potentially, America will be the

biggest oil producer and moving towards energy independence. That

has already driven a significant decrease in gas prices in America,

such as repatriating jobs from manufacturing and China, which

benefits the US. For some in America argue that this new way of

cheap energy gives America and can thus Canada a comparative advantage

in manufacturing to such an extent that they can repatriate factories

It is leading to situation that they a reversing terminals, to

actually export the stuff to the rest of the world so it has been a

game changer for the States, not without environmental concerns by

any means though. Presumably in terms of prices, there has to be

some knock-on effect. If you have America becoming self-sufficient in

oil production which some... In fact I think the International

Energy Agency has talked about that as early as 2020, that must impact

on prices. It has the potential to. So far, it is limited to things we

must consider. America in terms of the gas market, gas prices are low

there but still highly here because getting the goals from North

America, you can't transported very easily because of the limitations.

That is with the turning the terminals round comes in? Yes.

wonder what your take is on this, Tom Burke. The Office for Budget

Responsibility in the document it put out the company in the Autumn

Statement forecast quite a sharp fall in oil prices over the next

few years. In fact today in America, the Energy Information Agency has

put out its own forecast and is forecasting a drop in oil prices.

Do you think that is likely or do you take the opposite view? I think

the a be a's track record and forecasting anything is not exactly

brilliant so I would be cautious -- be a O B R's. I think the lady who

spoke in your package got it right - they will be volatile. One thing

you can be confident about is that demand will go on accelerating, the

demand for energy. So the policy everywhere is to try to separate

the price of oil and gas from the bills that people pay. So that your

households and businesses can actually afford to buy the energy

they need. So energy efficiency, whatever happens, really ought to

be the priority. But there is at least a possibility that the world

could be flooded... You say demand will continue to accelerate Park,

but one forecast for Harvard Business School forecasting the

biggest jump in hydro-carbon production but we have seen since

the 1980s. He is, and we have seen periods of boom and bust in

people's forecasts -- yes, and we have seen. We have seen that many

times before. I would treat them with a pinch of salt. If you base

your energy policy on getting the most valued out of resources you

currently have and the resources that to control, then whatever

happens to the prices, you will be in a good position which is why I

think Scotland has been wise to do what Germany is doing in a sense,

and putting a much greater emphasis than in England on the renewables

because they are things you control yourself. Briefly, David Hunter,

one of the things that has been alarming you if you invest in North

Sea oil is the stuff that is going on in America you were describing,

it is profitable on a low oil price. They talk about $70 a barrel and

that is probably limited to the current price of Texas oil which is

around 90, compared to 120 in Brent. These new projects would still be

profitable if the oil price drop. In the North Sea, some of the more

marginal development we are looking at require significantly higher

rates of return and a higher oil price for that to be viable. So

there are a great deal of uncertainties in terms of the

Global Energy Outlook as Tom just mentioned. What we must do his plan

on the basis of what we know and we will not accurately predict what

will happen to the global energy price in 10, 15, 20 years. There is

a great deal of value in looking at the sustainability side but also

maximising our own resources, not just renewables, oil and gas as

well. This may be positive from the point of view of renewable energy

that there are obvious dangers here. If we are moving into an era where

we have low air, hydro-carbon energy it also means that the

subsidies we are paying to renewable energy a relatively

larger and it becomes less clear whether people may be prepared to

pay those subsidies? Clearly there is a trade-off between the two and

you can't back two horses with all your money. And if we concentrate

to look much on a oil and gas, renewables will suffer. The real

problem is that hardly anyone raised in Parliament today is that

Scotland claims to be a world leader on cutting climate pollution

yet if its plans, as they spelt out today, to extract virtually every

drop of oil from the North sea go ahead, that will mean 10 billion

tonnes of carbon which will completely wipe out any gains we

make from saving and blow a gaping hole in the Scottish Government's

targets to cut climate pollution. So there is a massive contradiction,

I think, at the heart of the Scottish Government and most of the

opposition's view on this. They want to be green and combat climate

change but at the same time they want to massively boost the

pollution that will come from extracting oil. Even the

International Energy Agency says that if we want to save our climate,

we must keep perhaps a third of the fossil fuels in the ground. That

seemed a good idea to me. I was interested in your take on this, at

Professor Tom Burke, and possibly a hypocrisy in Scotland and the UK.

You were querying whether oil prices would for but gas prices

actually are falling, Sutton made in North America and there is an

expectation they will fall here -- certainly in North America. Gas

fired power stations, being regenerated. Not necessarily

compatible with the coalition government's rhetoric about climate

change. That is true and if you do not like the idea of what you are

seeing, you need to pay attention of what Robb was say because you

will get a lot more of that if we do not constrain the amount of

fossil fuels we use. And in a sense take us off the oil Hock right away.

I am much more sceptical about the promises of ever expanding amounts

of cheap gas -- the oil walk. There are more difficulties and problems

than often recognised in actually getting these new approaches to

shale type oil to work and there is a big trade off that has been

mentioned, about the price, between the price of oil and gas.

Investment in Gas has slowed down in America because oil prices have

gone up. I suspect you will see through next year, gas prices even

in the US starting to edge up again. It is very volatile and rob is

correct, the more you can do to get yourself out of the addiction to

these volatile prices, the better your businesses and homeowners will

be. It depends who you are there. Developing gas, it could be argued,

in the United States actually will reduce carbon emissions because of

their dependence on call whereas I move towards gas here away from

renewables would have the opposite effect. Yes except these things are

complicated. One of the possible effects of what is happening in

America there is, because the prices are going down of gas there,

it is releasing more fossil fuels on to the market. America uses more

but it does not been others use less. Mr Dover is using -- instead

of reducing fossil fuel use, we may be increasing it. To bring this

back to the North Sea, you were mentioning some of the more

advanced projects require a higher oil price to be viable. How

dependent on oil prices... Around 100 and of dollars per barrel, how

much do some of these projects depend on then stay at that level -

- $112 per barrel. He will looking at some projects at about $90 a

barrel. I think you can set a bit of store by the huge investment

decisions that some of the oil majors and mid-sized companies are

making in the North Sea, West of Shetland are investing significant

sums of money for the long-term which suggests the underlying

thoughts are that energy will not be cheap any time soon in a global

centre. A global oil prices crash, they can cancel the Investment

while they are considering it. But if you have put the money in and

made the investments, if the oil price falls below way you thought

it would be, do you keep going? to a degree, yes. You have seen

well prices collapse in the past 15 years -- oil prices and the market

tends to be volatile. It over correct in both directions. -- it

over-corrects in both directions. The rate that the global energy

demand will increase, the reality is we will need more of everything.

I need one-sentence answers from each of you on one thing debated

for years. Rob Edwards, P coil, we can forget about that? I do not

think so. Oil is a finite resource which will run out sooner or later.

That is not answerable. Sooner rather than later, Professor Tom

Burke? You will run into peak prices more often than people think.

Short sentence? I do not think we will hit peak will soon but it is a

finite resource. Thank you all very much.

A quick look at the front pages for tomorrow. Starting with The

Scotsman, it leads on the fact that just it has gone out of business or

at least the administrators have been called in for the online and