Mud wrestling

THE debate over Scottish independence sometimes resembles a duel between accountants, so keen is each side on flinging numbers at the other. That is especially true when it comes to the oil and gas industry—a crucial earner for a new Scottish state. But nationalists and unionists hold to entirely different views of the future riches of the North Sea (see chart). What accounts for the disparity?

Two questions separate the warring parties. The first is how long the bounty will last. Roughnecks have sucked 42 billion barrels of oil and gas from the sea bed; nationalists reckon the waters could cough up 24 billion more. Projections from the Department of Energy and Climate Change, by contrast, have suggested that as little as 10 billion might be retrieved.

The SNP bases its claim on research carried out by Oil and Gas UK, an industry body. That figure includes oil reserves that are thought to exist but have not yet been found; it also assumes that regulatory and market conditions are ideal. This is hopeful. But the British government is perhaps too pessimistic. It has been underestimating the size of the treasure almost since the first wells were drilled. A growing consensus among academics suggests that the midpoint of around 16 billion barrels is a fairly realistic punt—enough, at today’s production rates, to last for 30 years.

A second, fiercer, feud is over the amount of tax the North Sea would generate during the early life of a new Scottish state. Holyrood’s latest forecasts, published in May, assume that oil and gas revenues could earn the country around £34 billion ($56 billion) in the five years to 2019. That is more than twice as high as the haul predicted in July by Britain’s Office for Budget Responsibility (OBR), a watchdog, which suggests Scotland will rake in only about £15.8 billion over the same period.

Edinburgh’s cheerful estimate—the medium case in a broad range of scenarios—invokes some optimistic assumptions. Nationalists assume (probably rightly) that oil and gas production will creep upward, at least for a few years, as a glut of investment into the North Sea starts paying a return. They also guess—and it is largely a guess—that oil prices will be about 10% higher than Westminster thinks. The SNP’s figures almost certainly underestimate the rate at which operators’ costs will rise as the North Sea’s ageing oilfields mature.

Both sides are guessing. Although hardly anyone doubts that the North Sea tax take is shrivelling, income has grown particularly volatile of late. Yet past predictions favour caution. Since 2010 oil and gas production has consistently undershot the OBR’s expectations. It overestimated last year’s measly tax take in six consecutive forecasts. The Scottish government’s present models are already far less optimistic than those it was peddling last year. And Scotland’s voters might not fancy a punt.