Sunday, February 9, 2014

A "geographical share": a fair assumption?

It ought to be a cause of surprise and, frankly, derision that so many comments and reports about the economics of Scottish independence include a qualifier along the lines of "assuming a geographical share of North Sea oil". The phrase, or something similar, often features somewhere in the graphs and tables:

The implication is that some other method of allocation might be appropriate or fair or forced upon us. The further implication is that that might be a share by "population".

The reason this remains implication and is never spelled out is that it would be so ridiculous a suggestion. The notion of a "population share" arises only as a budgeting tool in the context of the existing UK where it shows, say, what contribution is made to the UK's economy, on a GDP per person basis, by North Sea receipts. No-one has (to my knowledge) ever seriously asserted that the physical entity "Scotland" should be divided up on a population basis. If it were, the border would be around Inverness, I believe. The proposition would be simply preposterously ridiculous.  

And yet. It keeps cropping up: "assuming". Sort of like "taking for granted without thinking about it". OK. Game on. Let's think about it.

The United Nations Convention on the Law of the Sea provides sovereign states with an Exclusive Economic Zone (or "EEZ"). An EEZ is an area of sea over which the state has exclusive rights to explore and exploit the resources, including oil and gas, found within it. Scotland's EEZ would be determined by the provisions of the Convention, as the UK's currently is. An EEZ generally extends to a distance of 200 nautical miles (370 km) out from a country's coastal "baseline" (normally, the low water line). So, Scotland's would look like this:
Scotland's EEZ

There is another issue to determine, though, when countries lie adjacent to each other on a common continental shelf (as would Scotland and the UK). Here, the Convention provides that the precise maritime boundary, as between them, can be agreed. Failing that, it shall be set by the "principle of equidistance" unless special circumstances justify modifying that principle.

Now, that reads as if the principle of equidistance is to be taken as the presumed method of demarcation. In fact, "The equidistance principle has not been very popular in the international community as a means of achieving an equitable result for the delimitation question of the continental shelf." In 2001, an academic study found that only four out 60 boundaries had been set this way, the remainder being set by agreement or by a modification of the principle: "state practice could hardly substantiate the existence of a preference for or even the acceptability of, let alone an obligatory character of, the equidistance principle". The Permanent Court of Arbitration has explicitly rejected the suggestion that there is some presumption in favour of the equidistance principle. Rather, the principle is "a weak and optional alternative solution and not...a general rule" and each case must be looked at on its own facts and "taking account of all the circumstances", such as the nature of the coastline and the presence of islands as well as the existence of "common mineral deposits".

The UK of course already has a number of maritime boundaries and the lines of each support all of this: some (with the Irish Republic, with Belgium, with Denmark in respect of the Faroes and with France in respect of the Channel Islands) negotiated and the rest set by a modified equidistance principle.

United Kingdom EEZ and maritime borders
In the context of Scotland and England, there is a radical shift in the direction of the coastline just after the border and this "geographical circumstance" is one which the same academic study explained amounts to  a "special circumstance", particularly in relation to the issue of "proportionality" or "the ratio between the lengths of the coasts of the interested states and the extent of their continental shelf areas". This special circumstance can be dealt with equitably only by using a modified equidistance principle. Taking account of all of this, the author felt that the resulting boundary (numbered "2" on the following map) was "very likely to be the selected solution as it reflects an equitable apportionment of the overlapping continental shelf areas of the parties concerned".

Scotland/UK maritime border options
Professor David Scheffer of Chicago, who specialises in public international law, has said something similar:
"I don't think London should be under the assumption they automatically have the median line, they should not even have to negotiate it. I think that would be a serious mistake because Scotland could ultimately bring this to the international court of justice and perhaps prevail there with a different line. "
Professor Arnold Kemp believes that "You might say that we should use that [median] line" but acknowledges the departures from that principle in various agreements  around the world and judgments made by the International Court. But most importantly, as Professor Kemp spells out, it frankly doesn't matter:

"The interesting thing is, from the economic point of view, it does not make much difference because there are just a handful of fields, and not very important ones now, between the median line and the line north of Berwick. Although lawyers could have a long debate about it, in terms of economics, it does not make all that much difference."

Wherever the precise line of the maritime border between Scotland and England will have a negligible effect on the demarcation of Scotland's EEZ and on the amount of oil and gas recoverable from it. The vast majority of the oil fields are located much further north.

Wherever the boundary is set, and even in the unlikely event it is set using a simple equidistance line, Professor Kemp estimates that 90% of North Sea oil will lie within Scotland's EEZ.

The detail of the unimaginably vast financial benefits of this wealth is for another post. In short, though, Oil & Gas UK estimate that there are up to 24 billion barrels to be recovered from the North Sea. That may be an underestimate: Mark Higginson, a senior partner at PriceWaterhouseCoopers, told the BBC last year that "it's likely that there is probably between 24 and 30 billion barrels of oil equivalent still to gather from the North Sea." More than half the oil by value remains to be extracted with a wholesale value of up to £1.5 trillion.
Share of EU oil reserves by country
And when the UK government or the Office of Budget Responsibility claim that the price of oil is volatile, it would not be unfair to have in mind their track record:
It probably is not that difficult to assess what is going to happen, in the medium to long term at least, to the price of a finite resource for which the world thirsts:
And finally:
Scotland has 25% of Europe’s total tidal energy potential, 25% of total wind energy potential and 10% of total wave energy potential.


  1. Excellent stuff. Thank you. That OBR oil price forecast graph should be used much more in discussions on this matter.

  2. A good article, interesting reading. Is it certain that Rockall will be part of Scottish territory, come independence? Any chance that Westminster or rUK would want to claim it, due to its significant position out to the west, and the surrounding maritime area its owner lays claim to?

    1. The Island of Rockall Act 1972 (as amended) provides that "the Island of Rockall...shall be incorporated into that part of the United Kingdom known as Scotland and shall form part of the Western Isles" ( I think I'm right the Earl of Caithness failed in his (astonishing) attempt to amend the Scotland Act 2012 to the effect that Rockall "Rockall shall be owned by the United Kingdom" in the event of Scottish independence ( So, leaving aside a "claim" made by annexation by force (that is, war) I think the position is clear.

    2. See also the UK Government's response to a Freedom of Information Act request at