6. Impacts on Scotland's economy and manufacturing sector (Q3)
6.1 This chapter presents an analysis of respondents' views on the potential impacts of unconventional oil and gas on Scotland's economy and manufacturing sectors.
6.2 The consultation paper set out the current context in relation to Scotland's Economic Strategy and draft Energy Strategy.  It also presented the main findings of the economic impact assessment commissioned by the Scottish Government. This examined the impact that an unconventional oil and gas industry could have on jobs and the wider Scottish economy under a range of potential production scenarios (described as central, low and high). It was also noted that unconventional oil and gas has had a major impact on manufacturing and energy supplies in North America. Respondents were asked to consider these findings and give their own views on the potential impact of unconventional oil and gas on Scotland's economy and manufacturing sector.
Question 3: What are your views on the potential impact of unconventional oil and gas industry on Scotland's economy and manufacturing sector?
6.3 Altogether, 19,112 respondents addressed this question. This comprised 116 organisations, 14 discussion groups, 2,730 individuals and 16,252 standard campaign respondents.
Overview of responses to Question 3
The predominant view was that the development of an unconventional oil and gas industry may result in a modest increase in jobs and some economic benefits to the oil and gas sector and chemical manufacturing sector in Scotland. However, these benefits are likely to be short-lived and are far outweighed by adverse economic and social impacts in other areas. Specifically, concerns were voiced about the potential for negative impacts on other key sectors of the Scottish economy – food and drink (including agriculture and fishing), tourism and housing – and the possibility of reputational damage to what was referred to as 'Brand Scotland'.
The alternative view was that the potential for positive impacts was enormous and the economic benefits were understated by the findings of the Scottish Government-commissioned economic impact assessment.
6.4 This chapter first discusses respondents' views on the findings of the Scottish Government-commissioned economic impact assessment which were presented in the consultation paper. It then considers respondents' views about the nature of any potential economic impacts, which were seen mainly in terms of: jobs and wages; impacts on the chemical manufacturing sector; impacts on other sectors of the Scottish economy; energy security; trade balance; and tax receipts.
Comments on the findings of the economic impact assessment
6.5 Respondents often referred in their comments to the findings of the economic impact assessment discussed on pages 40–44 of the consultation paper. They critiqued different aspects of the research and, depending on their perspective, suggested that the findings either overstated or understated the potential economic benefits.
6.6 Those who thought the economic benefits were overstated argued that:
- The research takes a narrow approach to assessing economic impacts and does not consider or give adequate attention to: (i) costs to other sectors which might experience negative impacts; (ii) health, social and environmental costs; and (iii) potential costs to the public purse of having to develop and enforce a robust regulatory regime.
- The economic scenarios set out in the research rely on data from productive shale fields in the United States. Some thought it was inappropriate to extrapolate this data to a Scottish context, given the different demographic context ( i.e. with a large population residing in close proximity to potential well sites), and the 'more complex geological formations' in Scotland. Moreover, it was thought that the (smaller) scale of production and stricter regulatory regimes in Scotland would lead to higher costs than those in the United States.
6.7 Those who thought the economic benefits were understated argued that:
- Since the report was published, gas prices have risen and future price forecasts are now higher than those used in the analysis.
- Estimated gas production under the most optimistic scenario was seen to be inconsistent with data from the British Geological Survey – and was considered to be low in comparison to other countries.
- The report contains little detail about possible benefits to supply chains. It was noted that supply chain impacts and associated job creation would be seen not only within the oil and gas and petrochemical sectors in Scotland, but also by a wide range of companies (including small businesses) supporting those industries.
The nature of impacts on the economy and manufacturing sectors
6.8 As well as highlighting a range of specific (positive and negative) economic impacts (discussed below), respondents also often expressed more general views about the potential impacts on the economy. These ranged from 'potentially overwhelmingly positive', through to 'modest but not huge', to 'disappointingly low' or even 'detrimental'.
Jobs and wages
6.9 One of the main economic impacts that respondents identified was in relation to jobs and wages. However, the predominant view, expressed by those who were generally opposed to the development of an unconventional oil and gas industry, was that any benefit to the Scottish economy in terms of job creation was questionable. Respondents who held this view thought that:
- Many of the jobs created would be short-term – associated with the construction and development of well pads
- Skilled jobs would be few in number and likely to be filled by staff brought in from elsewhere or 'specialist contractors flown in from overseas' who have the necessary expertise and experience
- Additional supply chain benefits (for example, related to the manufacture of specialist equipment) would be unlikely to be felt in Scotland as equipment related to exploration and drilling would be purchased more cheaply from overseas suppliers
- Most local jobs arising from the development of an unconventional oil and gas industry were likely to be limited to low-paid, low-skill, temporary work or related to accommodation provision for temporary workers
- Having a more accessible ( i.e. 'cheaper to extract') onshore supply of oil and gas could cause further decline in the existing offshore industry.
6.10 In general, respondents with these views concluded that unconventional oil and gas was unlikely to provide meaningful, desirable or stable local employment. Instead, respondents frequently suggested that renewable energy and energy efficiency schemes have the potential to provide greater benefit to the Scottish economy in terms of job creation and sustainability.
6.11 By contrast, the alternative view put forward by those in favour of establishing an unconventional oil and gas industry, was that its development could potentially:
- Secure existing highly skilled, high-value jobs and create many new jobs in the chemical manufacturing industry in Scotland – respondents referred to the possible creation of thousands, tens of thousands and even hundreds of thousands of jobs
- Create a wide range of new supply chain jobs – i.e. technical services, equipment hire and maintenance, monitoring and inspection, fluid management, waste services, etc.
- Help with the redeployment of skilled and experienced workers made redundant by the Scottish offshore oil and gas industry
- Attract investment, and lead to increased wages and higher standards of living in the central belt
- Provide opportunities for training, apprenticeships and well-paid employment for young people.
Impact on the manufacturing sector
6.12 There was a general view among respondents – both those opposed to establishing an unconventional oil and gas industry in Scotland, and those in favour – that one of the main beneficiaries would be the chemical manufacturing industry at Grangemouth. However, the predominant view, expressed by those opposed, was that any benefit to this sector would be short-lived and far outweighed by the risks of adverse impacts on other key Scottish industries (discussed further below). The respondents who held this view made a variety of related points, including that:
- Given the current low cost of importing shale gas from the United States, there is little economic pressure on Scottish industries to find alternative sources of gas. Moreover, given the (estimated) smaller scale of production in Scotland as compared with the United States, there is every possibility that the cost of domestically produced gas would be no less expensive than imported gas, thus making investment in the unconventional oil and gas industry a 'waste of money'.
- The oil and gas produced would undoubtedly be sold to the highest bidder, and there was therefore no guarantee that the Scottish manufacturing sector would benefit directly from having a locally produced supply of shale gas and oil.
- Regardless of its price, a domestic supply of shale gas and oil is unlikely to displace imported gas and oil entirely.
- Scotland's efforts and investment would be better focused on reducing reliance on fossil fuels and developing a more sustainable post-carbon economy.
6.13 The alternative view, mainly expressed by those in favour of establishing an unconventional oil and gas industry, was that, potentially, a source of domestically produced shale gas and oil would provide a secure supply of feedstock for the chemical manufacturing industry in Scotland, thus doing away with the need to import gas and oil from the United States. This would lower production costs for an important sector of the Scottish economy, and make this sector more competitive in international markets.
Impacts on other sectors of the Scottish economy
6.14 Respondents who were sceptical about the potential for unconventional oil and gas to create local jobs argued instead that it could, in fact, result in significant job losses in other key sectors of the Scottish economy. Those seen to be most at risk were in the food and drink industry (including agriculture, fishing, whisky, beer and bottled water) and tourism.
6.15 There were repeated concerns about the potential for contamination (or even the perception of contamination) of land and / or water to undermine consumer confidence in Scottish food and drink. Respondents pointed to Scotland's international reputation for high-quality food, fertile land, clean air, and unspoilt landscapes and argued that this 'Brand Scotland' could be seriously damaged by an unconventional oil and gas industry.
6.16 There was a further concern about the possibility of personal loss to farmers as a result of high value farm land being broken up to accommodate drilling sites, and (potentially) the inability to obtain insurance to cover losses related to the long-term contamination of land and / or sickness or death of livestock caused by the effects of fracking.
6.17 Respondents also frequently raised concerns about the possibility of negative impacts on the housing sector, particularly in terms of falling house prices and the inability to sell houses. These concerns were based on reports about the negative impacts already beginning to be seen in the property market in communities in the north of England which have been identified as potential drilling sites. Concerns were also expressed about the possibility of being unable to obtain a mortgage or home insurance for a property located in areas around drilling sites. Respondents commented that once oil and gas wells are in place, they cannot be fully removed, only 'capped'. Thus, the negative effect on the housing market could last for a considerable length of time. Less commonly, respondents thought that negative impacts in the housing market might also arise as a result of local homes being bought up by individuals employed in the oil and gas industry, thus resulting in inflated house prices and the existing local population being priced out of the market. Respondents were also concerned about the loss of land for housing, both in the short term, and in the long term where land had been contaminated.
6.18 Only very occasionally did any respondents suggest that an unconventional oil and gas industry could have a positive impact on other sectors of the Scottish economy. For example, there was some comment that it could benefit tourism since fewer wind farms would need to be built in beauty spots.
Energy security and costs
6.19 Although the consultation paper had stated that Scottish shale gas was not likely to be used to supply energy or lead to lower fuel prices for domestic customers, some respondents nevertheless commented that they thought domestically produced gas could benefit the Scottish economy by filling an energy gap resulting from: (i) the decline of the offshore oil industry, and (ii) the planned decommissioning of nuclear power stations.
6.20 However, it was more common for respondents to dismiss the potential benefits of unconventional oil and gas for Scotland's energy supply. These respondents argued that Scotland's energy future lies with renewables and carbon neutral alternatives such as bio-fuels. These issues are discussed in further detail in the next chapter.
Balance of trade (imports vs exports)
6.21 While some respondents saw the potential for Scotland to become a significant exporter of unconventional oil and gas as a result of the development of an industry in Scotland, respondents were more likely to argue that global oil prices were volatile and determined by political forces beyond Scotland's control. Furthermore, it was unlikely that Scotland could compete in the international oil and gas market with countries such as Poland, the USA or Russia. The point was made repeatedly that if current low oil and gas prices persisted, then an unconventional oil and gas industry in Scotland would not be viable.
6.22 The potential for increased tax receipts was a positive impact identified by some respondents. This group argued that the production of Scottish shale gas would result in increased taxes paid to central government and local authorities through corporation tax, business rates, VAT, and a general strengthening of the income tax base in Scotland. There was also a view that the growth in the economy achieved through an unconventional oil and gas industry would result in more money being available for the NHS, education and public services more generally.
6.23 More often, however, respondents claimed that any profits from unconventional oil and gas production would go to 'offshore tax havens', or that most of the tax received would go to the UK Government, leaving Scotland with little benefit. There were also repeated concerns that the cost of decommissioning redundant wells would end up being borne by the Scottish Government and therefore the taxpayer. Respondents also argued that unconventional oil and gas was likely to present significant costs to the public sector, as a result of adverse health (and mental health) impacts, road and infrastructure repairs, industry subsidies, monitoring regimes, and incidents and accidents.
Other relevant issues raised by respondents
6.24 Finally, respondents raised other relevant issues which were of a different nature to the impacts described above:
- Some respondents argued that the development of an unconventional oil and gas industry was inconsistent with a range of other economic policies and strategies in Scotland, including the Scottish Government's draft Climate Change Plan, draft Energy Strategy, Good Food Nation strategy and Zero Waste Strategy ( i.e. the development of a circular economy). It was also thought to undermine the local tourism strategies of towns and cities in the central belt (Falkirk and Stirling were particularly mentioned).
- Respondents frequently stated that Scotland's economy and manufacturing sectors would be better served in the medium to long term by focusing on research and development for cleaner energy projects, and reducing the demand for oil and gas. It was noted that many other countries around the world were already moving in this direction.
- Some respondents called on the Scottish Government to find ways of supporting the chemical manufacturing industry at Grangemouth in ways that do not jeopardise the environment or the communities and regional economies in the central belt.
- A few respondents suggested that there were risks in not establishing an unconventional oil and gas industry in Scotland. These risks could include job losses in Scottish manufacturing and loss of confidence and investment in the established oil and gas industries.
Phone: 0300 244 4000 – Central Enquiry Unit
The Scottish Government
St Andrew's House