Oil on our doorstep:
the Shetland
experience
Jonathan Wills
Sovereign wealth
and the defence of
the realm
If Scotland hadn’t annexed Shetland in 1611 the UK
sector would be rather smaller than it is…
1955: Britain claims Rockall
• Britain has annexed a rocky islet 300 miles
(483km) west of Scotland to stop the Soviets
spying on missile tests, the Admiralty has
announced. The UK formally claimed
uninhabited Rockall, which is just 70ft (21m)
high, on 18 September 1955 at 1016 GMT.
• Two Royal Marines and a civilian naturalist
[James Fisher], led by Royal Navy Lieutenant
Commander Desmond Scott, raised a Union
flag on the island and cemented a plaque into
the rock. [BBC Home Service, 21.09.1955]
A diversion to Rockall
..and what if the UK had no claim to Rockall?
...someone in Whitehall had thought of that.
The Russians weren’t coming after all, but
the oil and gas companies were...
• In 1972 the Isle of Rockall Act was passed, which made
the rock officially part of Inverness-shire.
Shetland, 1972-2013:
Lessons from four decades of
petro-cohabitation, revenue
sharing and environmental
protection.
KARL, Terry Lynn, 1997, The
Paradox of Plenty. University
of California Press, London.
ISBN 0-520-20772-6.
The Paradox of Plenty
• Terry Karl said oil and gas developments
usually create:
1.Local economic chaos;
2.Mass impoverishment;
3.Arrogant, greedy and often violent elites;
4.Corruption on a large scale;
5.Social and political dislocation;
6.Widespread environmental degradation.
Sullom Voe tanker terminal - £1.7bn at 1977 prices
Shetland councillors’ aims in 1972:
• Plan and control oil developments, so as to
avoid local economic chaos and social and
political dislocation;
• Make sure everyone got a share of the
revenues, to avoid mass impoverishment;
• Secure long-term benefits for the whole
community, rather than the usual short-term
boom favouring the wealthy few;
• Foster high safety standards, to avoid
widespread environmental degradation.
(…because there is such a thing as society)
The legal basis of prosperity
• Political influence
– Zetland County Council Act 1974
– Sullom Voe Association Agreement 1975
• Revenue Sharing
– Disturbance Agreement 1974
– Shetland Islands Council Charitable Trust 1976
– Port & Harbour Agreement 1978
• Environmental Safeguards
– Sullom Voe Oil Spill Advisory Committee;
– Shetland Oil Terminal Environmental Advisory Group
(SOTEAG);
– Vessel Traffic Systems post-1979.
Since 1976, Shetland’s council has been:
1. Equal partner in Sullom Voe Association (SVA) with
power to block important decisions;
2. Port authority;
3. Owner of Sullom Voe Terminal site (later transferred
to Shetland Charitable Trust);
4. Owner of the loading jetties;
5. Employer of salaried pilots;
6. Shareholder/Owner of tug company;
7. Trustee for local public oil revenues;
8. Planning authority;
9. Formerly the environmental regulator (most such
functions now with national government agency).
Oily money “for a rainy day”
Value of Shetland’s ‘oil funds’:
• Shetland Charitable Trust: £188.3m stocks & shares + ca. £28m
in local property = ca. £216.3m at 26/04/13
• SIC Reserve Fund (from the accumulated profits of the Sullom
Voe harbour) = £57.1m at 26/04/13
• Total ‘oil funds’ = £273.4m (i.e. £12,151 per head of population)
• NB SIC also has about £133m of reserves in other earmarked
funds, some of which originated as income from the oil industry.
So the total of local publicly controlled reserve funds is about
£406m (£18,062 per head)
1985: £3m Leisure
Centre(+£11m
pool)
2007: £12m
Museum
2012: Cinema & Arts
Centre - £13.5m+
But...
• You should only spend the
income, not the capital;
• Buildings have running costs that
escalate;
• Mr Micawber was right.
1.
2.
3.
4.
5.
6.
7.
Political cartography is a messy business
Although Terry Karl was right, it doesn’t have to be like that.
Most governments are in thrall to the oil and gas industry and will, with
rare exceptions, oppose any attempts at local control or revenue sharing.
Oil company directors will act in the best interests of their organisation
and if you can persuade them that local interests coincide, then they will
do deals.
When calculating how much oil can be extracted, and how much income
you’re likely to get, there are no reliable sources. But you can ‘bet your
sweet bippy’ there’s more oil and less local revenue than they tell you.
It doesn’t cost a lot, relative to the scale of the oil and gas enterprise, to
avoid Terry Karl’s ‘Paradox of Plenty’ and create ‘socialism in one county’.
It certainly has no significant effect on the profitability of oil and gas
companies.
Don’t ever use the deposit account to make good a deficit on the current
account. Live within your means.
Here Endeth the Lessons