The North Sea And The UK Economy - A Financial Analysis

Abstract

Abstract The paper covers oil and gas in the United Kingdom and Norwegian sectors of the North Sea. It summarizes an economic and financial research study which the author is conducting. Statistics are given up to end-1977, with future projections. The oil and gas extraction industries are subjected to economic and financial analysis. The effects of the income generated for governments and oil companies are examined in terms of flow of funds and national accounts. The main subject headings are: Reserves, Production, Prices and Values, Energy Policy, the State Oil Corporations, Offshore Investment, Finance, Banking and Insurance, Taxation, Company Sector, Public Sector, Balance of Payments, Gross National Product. Policy decisions are assessed, and future policy options set out. INTRODUCTION This paper sets out to describe a research study in which the author is engaged. The project is not yet at the stage where firm conclusions can be put forward. The procedure adopted will therefore be to describe the methodology, and to give tentative findings wherever this is possible. Since many of the approaches employed in the study cannot be pursued in detail, further avenues of enquiry may suggest themselves to other researchers. The general title of the study is "North Sea oil and gas and its economic significance". It is to be published by the Financial Times in late 1978. A number of economists have already published work in this area. References are given at the end of this paper. Three different lines of enquiry have been pursued in other work, which are all to some extent present in the author's study:An economic and financial analysis of the oil and gas industries themselves, taking into account their growing relative importance in the economies of the UK, and even more, of Norway.Taking the oil and gas industry as given, it is possible to follow the progress of the income which they generate into the different sectors of the British and Norwegian economies, and attempt to forecast how it may affect the balance of payments, the Government budget, or the private sector.A possible variant on 2) is to attempt a normative rather than a positive study, discussing various alternative uses of North Sea income as an exercise in political economy. The author's study attempts to combine aspects of all three approaches. Comparisons are made, where they are appropriate and possible, between the UK and Norway, on both oil and gas development, and on the broader economic issues. Emphasis is also placed on how the oil companies will, or should, dispose of their North Sea income, as well as on the question of the allocation of Government royalty and tax income. Particular attention is paid to the two State oil companies, BNOC and Statoil, where both Government income and oil company income are involved. Gas is covered as well as oil, and the importance is underlined of achieving clarity in both statements and statistics as to whether oil only is being referred to, or also gas, and if so, whether it include Southern as well as Northern gas.