Most countries in Europe look on Norway with envy. As the UK and other European countries struggle with reducing public spending, Norway benefits from a sovereign wealth fund worth around £500 billion. It has wisely invested the income from its oil and gas reserves, with its fund considered by many to be the world’s largest.
To date Westminster has been slow to grasp the approach adopted by Norway, and other countries. However, Westminster is now considering plans for a sovereign wealth fund to be set up with revenues raised from onshore shale gas, which it hopes will offset declining revenues from the North Sea.
Onshore fracking has proved somewhat controversial to date with concern among the general public over a raft of issues including ownership of the assets, community benefits provision and the environmental impacts associated with extraction methods.
Perhaps somewhat contentiously George Osborne has outlined the income generated by this fund would centre around the North of England, where much of the UK’s shale gas is located, and an area whose economic performance lags behind the South of England. Such a fund is also unlikely to start until the end of the current decade.
Further details on how the fund will operate are not currently available, and it may not be until the budget update next month until we hear George Osborne’s specific plans.
In the meantime the Smith Commission and Scotland should consider this development as an opportunity to ensure that both Westminster and Holyrood come together in order to establish a truly national sovereign oil and gas wealth fund covering the entire UK, and offshore and onshore oil and gas activities.
There is much we can learn from Norway, and others, in establishing such a fund, and it is important that we take cognizance of best practice elsewhere, if the benefits are to be realised from the onshore shale gas revolution, as well as the significant offshore conventional oil and gas reserves that remain to be exploited.
Peter Strachan is a Professor of Energy Policy at Robert Gordon University and Alex Russell, his co-author, is a Professor of Petroleum Accounting at Aberdeen Business School.
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