Page 6 - EurOil Week 34

EurOil COMMENTARY EurOil

Scottish deficit grows as oil

revenues slump

North Sea revenues nearly halved in the year ending April 5, even though
COVID-19 only affected the tailend of the year

UK SCOTLAND’S public spending deficit rose billions draining from the Scottish economy in
to GBP15.1bn ($19.9bn) in the financial year the event of separation, Scotland would be thrust
WHAT: ending April 5, 2020, up GBP2bn from the pre- into years of savage and unrelenting austerity.”
Scotland’s budget deficit vious 12 months, while its North Sea revenues
widened in 2019-2020, as almost halved, figures published on August 26 Crisis mode
revenues increased but show. North Sea production edged down in the 2019-
spending increased more. The deficit in the last fiscal was equivalent to 2020 fiscal, with major factors including the
8.6% of gross domestic product (GDP), while lengthy shutdown of the Mossmorran natural
WHY: the overall UK deficit stood at 2.5% of GDP. The gas liquid (NGL) plant in Fife and reduced oper-
One factor was a near Government Expenditure and Revenue Scot- ations at several large gas terminals.
halving of North Sea land (GERS) statistics only include the “initial Oil and natural gas liquids (NGL) extraction
revenues, owing to low impacts” of the coronavirus (COVID-19) pan- was down 1.8%, while gas production was 0.7%
prices. demic, but the effects will be greater in the 2020- lower. Oil prices were 12% lower than in the
2021 fiscal, the report warned. previous year at $61.4, but slumped to as low as
WHAT NEXT: Scottish revenues rose by 0.7% in 2019-2020 the mid-$20s in April at the height of the mar-
Scotland’s budget will to GBP65.9bn – their highest level on record. But ket crisis. Brent currently trades at around $46
face a much tougher year spending climbed 3.2% to GBP81bn. per barrel, and the consensus is that it could take
in 2020-2021 because The increased shortfall came as Scotland’s until the end of 2021 for the benchmark to near
of COVID-19. The UK oil North Sea revenues dropped by over GBP600mn $60 again.
industry remains “close to GBP724mn. Weaker oil prices were the pri- The impact of low prices on companies’ earn-
to collapse,” as operators mary factor, and given that the steepest fall only ings and cash flow is one matter. Another is the
anxiously await a sector occurred in March, receipts from the industry serious effects that investment cuts will have on
deal promised by the look set for a further, far greater decline in the future production levels. The industry is waiting
government. 2021-2022 fiscal. on an oil and gas sector deal promised by the
In comparison, the North Sea brought in Conservatives in the election manifesto last year,
around GBP11bn in receipts a decade ago. to help support new projects and save jobs. The
Oil and Gas Authority (OGA) plans to submit
Reactions proposals for the deal to the government in the
The Scottish nationalist-led government’s near future.
Finance Secretary Kate Forbes said the results In neighbouring Norway, the government
showed how the pandemic had “fundamentally announced tax changes back in June expected to
changed the fiscal landscape.” free as much as $9.6bn for investments, result-
“We are now witnessing an unprecedented ing in a raft of new projects being approved.
health and economic crisis. Countries across the Meanwhile, the UK industry remains “close to
world, including the UK, have increased bor- collapse,” the head of independent explorers’
rowing to record levels and, as we emerge from association Brindex, Robin Allen, told the BBC
the pandemic, high fiscal deficits will inevitably earlier this month. With oil below $60 per bar-
be one of the consequences.” rel, almost no new projects are profitable, said
“An independent Scotland would have the Allen, who is also the director of UK producer
power to make different choices, with different Premier Oil.
choices, with different economic budgetary “This has happened before, and the industry
results.” adapts, but the adaptation is one of slashing peo-
However, the Scottish Conservative opposi- ple, slashing projects and reducing costs wher-
tion said the data undermined nationalist calls ever possible, and that’s painful for companies
for a second independence referendum. They and painful for companies and painful for the
show that remaining in the union was “more country,” he said. “It’s close to collapse. In terms
valuable than ever for Scotland.” of new investments – there will be none, every-
Scottish Labour and Scottish Liberal Demo- one is retreating, people are being laid off at most
crats made similar remarks. Labour leader Rich- companies ... budgets for 2015 are being cut by
ard Leonard said the figures warned that “with everyone.” ™

P6 www. NEWSBASE .com Week 34 27•August•2020