As Scotland prepares to decide whether to vote ‘yes’ for independence, the North Sea oil and gas industry’s economic prospects have become something of a political football.

Today, a new report backed by the ‘Yes’ campaign claims the industry’s taxes could be worth over £600 billion. But other experts have been quick to cast doubt on the findings.

Geologists think there’s still plenty of oil and gas under the North Sea. The problem is that companies have extracted most of the easy-to-reach resources. Uncertainty around the fate of the remaining oil and gas has created space for speculation over how much the industry is worth.

That’s where today’s report from consultancy N-56, founded by a Yes campaign board member, fits in. It claims there could be around 45 billion barrels of oil and gas remaining – almost double previous estimates – worth £665 billion in tax receipts.

Conventional oil and gas

The North Sea’s oil and gas reserves are becoming depleted, with companies extracting fewer and fewer barrels each year. Experts believe the industry could persist for a few more decades, but only if companies are willing to explore hard to reach spots.

Whether they will – or even can – access such resources is very open to debate, however.

A major review of the North Sea’s resources conducted by energy magnate Sir Ian Wood for the UK government last year suggested 24 billion barrels could be extractable, at a cost.

Woods has since revised his figure to 15 to 16 billion barrels, but N-56 takes the earlier, more optimistic, estimate. It says the government’s tax income from such reserves could add up to £365 billion by 2040.

That’s more than six times the UK government’s Office for Budget Responsibility’s (OBR) estimate. The OBR says that between 2018 and 2041, it expects North Sea Oil and Gas to generate just £56 billion in tax receipts.

Why the discrepancy? Unlike N-56, the OBR assumes the rate of North Sea oil and gas extraction continues to fall by five per cent per year. N-56 described OBR’s projection as “pessimistic”, despite it being slower than the average fall of 7.8 per cent per year since 1999.

Getting the returns N-56 projects would also rely on the government implementing a range of new policies. These could be costly, the Department of Energy and Climate Change (DECC) warns. It suggests the Scottish government would have to invest around £3,800 per person to keep the industry going in its twilight years. This is about ten times more than if the costs were spread across the whole of the UK, DECC claims.

Undersea fracking

The North Sea’s conventional reserves are only half of N-56’s story. It doesn’t just think the current industry will survive, but that there’s opportunities yet to be explored. Namely, undersea fracking.

It says “new technology” could help companies exploit vast reserves of shale oil and gas under the North Sea. Such underwater fracking could yield a further 21 billion barrels of oil and gas and generate £300 billion in tax revenue, it estimates.

N-56 focuses on an area called the Upper Jurassic Kimmeridge Clay which stretches all the way from Devon into the North Sea. New horizontal drilling technologies could be used to reach hard-to-access shale oil in the clay, N-56 says.

In an interview with the Daily Telegraph, which backs the ‘No’ campaign, University of Aberdeen Professor David Macdonald says that the idea of undersea fracking is “largely nonsense”.

Fracking offshore can cost ten times as much as doing it onshore, he says, meaning it currently makes little economic sense to explore the North Sea’s shale plays. N-56 acknowledges that MacDonald’s statement reflects the industry’s current “conventional wisdom”.

So given the economic limitations of undersea fracking, and the geological uncertainties around the North Sea’s conventional oil and gas reserves, N-56 seems to be offering an optimistic account of the industry’s prospects. With a large dose of politics is added to the mix, it may be wise to handle such estimates with care.