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By Martin Kelly
The oil and gas sector has the potential to boost the economy by as much as £200bn over the next twenty years according to a former oil tycoon.
In a report published today (Monday 11 Nov) Sir Ian Wood has concluded that a new regulatory body, based on those from neighbouring oil producing countries such as Norway, should be set up in order to boost collaboration and increase efficiency.
Sir Ian's report estimates that the prize from increased and effective collaboration could be an additional 3-4 billion barrels of oil equivalent over 20 years, which could be worth £200 billion.
The former Head of the Wood Group said: "The evidence is clear. We need to strengthen the capacity and capability of our stewardship regime to enhance collaboration significantly across the North Sea if we are to meet the challenging demands of maturity and diversity and maximise the economic benefits for both the country and the industry."
Sir Ian said it was "essential" for the prosperity of the UK that recovery of North Sea oil and gas was maximised and added: "It is therefore crucial that industry and government act now to invest in this shared vision if they are to achieve these goals.
"Subject to feedback, I will be urging DECC and government to implement the main recommendations on a fast track programme".
According to Sir Ian's report, future licences for oil and gas developments should include a clause "making clear that in all areas of development and operation, the licence holder must act in such a way that would be consistent with the principle of maximising economic recovery".
The report was welcomed by Scotland’s Energy Minister, Fergus Ewing, who said:
"Sir Ian Wood’s Interim Report suggests that a new regulatory body is needed in order to achieve the massive prize of maximising economic recovery of oil and gas. The Scottish Government are fully behind Sir Ian Wood’s report. We believe it is essential that the recommendations are implemented with speed, and a shadow body be set up rather than await the outcome of primary legislation.
"We share Sir Ian's view that the industry should finance this body, and since most of the developments in the North Sea and west of Shetland are managed from Aberdeen, Europe’s Oil and Gas capital, we believe the only conceivable principal location for the new regulatory body is in Aberdeen."
Highlighting the damage caused to the industry in 2011 when UK Chancellor George Osborne announced a surprise tax raid on the sector, Mr Ewing added:
"Sir Ian's report also notes that fiscal instability has been a significant factor in basin underperformance. The Scottish Government have appointed an Independent Expert Commission on Oil and Gas, chaired by Melfort Campbell.
"The commission will consider specific proposals for providing long-term fiscal stability and predictability for the oil and gas industry, and will also make recommendations for the regulatory and licensing regimes."
Labour's Shadow energy minister Tom Greatrex said Sir Ian's report "rightly calls attention to the need for cooperation and wider consultation in order to get the most from the remaining resources in the North Sea".
However the Labour MP also mounted an attack on independence, adding: "Oil is by definition a declining resource and by record a volatile one, so care and attention is required.
"Given the global nature of this business, fragmentation of fiscal and regulatory regimes through separate arrangements in Scotland from the rest of the UK would increase risk, reduce efficiency and minimise the chances of achieving the goals this interim report sets.
"This interim report and the subsequent full report will be important factors to consider as industry, workforce and Government collaborate for the future of an important sector in the Scottish and UK economies."
The oil sector has been a central feature of the independence debate with the UK and Scottish Government’s disagreeing over the potential revenue still remaining.
Westminster claims that North Sea oil revenue will begin dropping after 2014 and would not be a reliable source for an independent Scotland's economy.
The Office of Budget Responsibility (OBR), set up by Tory Chancellor George Osborne, has claimed oil and gas will generate £33bn up to and including financial year 2017/18. This is around £9bn lower than the Scottish Government's own cautious estimate, which forecast £42bn.
The Scottish government claims that there still exists £1.5 trillion of oil to be extracted from the North Sea. However a recent study, based on OECD figures, suggested that improvements in technology meant that there could be as much as £4 trillion of oil and gas left in Scottish waters.