In the first of a six-part series running all this week in The National, petroleum industry expert Professor Alex Russell examines Westminster's exploitation of Scotland's oil.

THE exploitation of the UK’s North Sea oil and gas reserves has often been portrayed as an economic triumph. This first of six articles presents an alternative view based unashamedly on what past and future generations of Scots have lost due to the way Scotland’s oil and gas wealth has been plundered, squandered and mismanaged by successive Tory and Labour Westminster governments.

Of course, there will be an immediate outpouring of venom from Unionists who will claim it was never Scotland’s oil. Worse, if they do concede the point, they will argue that Scotland’s share should be based on the size of its population which would, of course, once again favour the fat, over-resourced underbelly of the UK that is London.

They are wrong. For the sake of argument, if it is assumed that the 1701 joining of Scotland and England was a marriage-type arrangement then

both countries would bring existing assets with them. These assets surely included all mineral wealth lying within their land and continental shelf offshore regions. The received wisdom regarding the extent of those boundaries as rigorously researched by Professor Alex Kemp and Linda Stephen of the University of Aberdeen is illustrated in the figure above.

As a ballpark figure, Scotland’s share of UK’s North Sea assets is approximately 80 per cent!

In 1974, to the chagrin of the Tory Government, the size and Scotland’s likely ownership of that wealth was brought to their attention in the oft quoted McCrone report. Its contents were so explosive, in so far as they flattened out of sight any counter arguments Westminster might make against the economic case for an independent Scotland, that they labelled it top secret for more than 30 years.

The SNP’s claims at the time regarding the extent of the income from future North Sea oil and gas were derided by ministers despite the “secret” McCrone paper having informed the government that: “It must be concluded, therefore, that large revenues and balance of payments gains would indeed accrue to a Scottish government in the event of independence”; and that “This paper has shown that the advent of North Sea oil has completely overturned the traditional economic arguments used against Scottish nationalism.

“An independent Scotland could now expect to have massive surpluses both on its budget and on its balance of payments and with the proper husbanding of resources this situation could last for a very long time into the future.”

Was this ministerial stance against the prospects of an independent Scotland in 1974 outright deceit? If everyone in Scotland knew just how wealthy an independent could have been is there any shadow of doubt that they would have voted Yes to independence? Is this an example of overt mis-selling on a nuclear scale?

Equally important, the revenue from exploiting North Sea oil has been used almost exclusively to plug the hole in the UK’s debt-fuelled

foreign ventures, funding Trident and investing inordinate sums in the prosperous south. In essence, Scotland’s oil was the family silver, brought to the sham “marriage”, and the UK sold this capital to avoid going under. In consequence, in the event of Scotland ever winning its freedom, it has already paid off any share of national debt owed by the UK.

This historical sideshow obscures the real damage done by Westminster to the UK’s and Scotland’s oil and gas “take” from the North Sea. The salient points are:

Westminster’s policy during the 1980s of privatising state-run energy companies the British National Oil Corporation (BNOC/Britoil), British Gas Corporation (BG) and British Petroleum and of essentially empowering multinational oil companies to control the pace and development of oil fields discovered in the licensing areas awarded to them simply beggars belief. Little wonder then that oil companies became fabulously wealthy as they strove to maximise shareholder wealth rather than boost government coffers.

And worse, if possible, over the past 50 years or so Westminster has encouraged maximum production at all times, even when prices were ridiculously low. Is this a breach of their fiduciary duty to protect the interests of past and future generations of Scots for whom the oil and gas resources were their birth right?

Mismanagement is too gentle a description to apply to their laissez-faire approach. Why? Well contrast the approach taken by Norway to its share of the North Sea oil and gas fields. The size of the resources were more or less the same as were the difficulties in exploring and producing the oil and gas. Norway, however, has generated almost $19 per barrel more for the nation than the UK and twice the income from approximately the same output as demonstrated in the state of play figures in 2014 (see graph).

The Norwegian Oil Fund stands at £1 trillion today. Arguably Westminster’s trust in private enterprise cost UK citizens £400 billion which should have been available for funding affordable housing, reducing inequalities, boosting the NHS and establishing green energy production.

In total Scotland’s oil should have contributed £600 billion to Westminster, had Westminster followed the approach taken by Norway. Had Scotland won its independence in the 1970s, the likelihood is that it would by now be one of the wealthiest countries in Europe.

In 2010, the Office for Budgetary Responsibility was created to provide “objective” forecasts for the UK Treasury. Objective they may be, but press criticism of the frequent revisions to forecasts calls into question their utility value. Thus, in 2015 when the OBR slashed its forecast of future North Sea oil revenue by, wait for it, 94 per cent, alarm bells might have started ringing, especially as at the same time Oil & Gas UK was claiming there were almost 24 billion barrels of oil still recoverable from the North Sea. Did the OBR forecast affect voters’ attitudes to the SNP in the 2015 election?

In summary, there are lessons to be taken on board by political parties in Scotland going forward. Statements by Westminster on the non-viability an independent Scotland can be taken with a pinch of salt. Scotland has made an unbelievably disproportionate contribution to the Westminster and oil company coffers over the past 50 years. When a national resource is being exploited it is folly to leave the exploitation to private companies.

When private companies contribute funds to, say, to one political party, and then private companies are left to run the economy, the moral hazards are overwhelming. Add to that the “reward system” that involves “thanks a lot” peerages and the like, then the need for the UK system to be radically modernised is critical. For example, many Scots would claim the House of Lords is nothing more than a retirement home for party donors and past-it MPs. And finally, Scotland can justifiably claim all the national debt (approx £1 trillion) belongs to England!

Read part two now: Westminster let oil companies profit at Scotland's expense by getting priorities wrong