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Oil, Thatcher, and the Wealth of Nations

Data visualisation specialist Jonathan Callahan has produced by far the most interesting response to the death of Margaret Thatcher I’ve yet to see, originally posted as a comment on The Oil Drum and reproduced below. Using his Energy Data Browser he has linked significant points of Thatcher’s career to the North Sea Oil boom. This connection is useful to further unpack issues around the vulnerabilities of nations [and governments] more generally to oil dependancy.

Before having a look it is worth noting a couple of things. The Data Browser turns the figures from the annual BP Statistical Review into visualisations of where regions and nations sit on the Energy Import/Export seesaw. As such it depends on BP’s policies and accuracy. For instance the oil category is an ‘all liquids’ measure not crude oil only [the best stuff], so biofuels, lease condensate, bitumen and all sorts of products with different energy content and utility are all included. The key issue, however, is illustrated very clearly: North Sea Oil gave the UK some 25 years as a net exporter of liquid fuels. And that’s now over. Thatcher’s achievements, whatever your view of them need to be seen in the context of this temporary boom, as do Blair’s. For example; it is easier to close down one energy industry [coal mining] when you happen to have a new one just coming on stream [North Sea Oil].

UK Liquid Fuels and Thatcher. J Callahan

UK Liquid Fuels and Thatcher. J Callahan

This approach should also be extended to include the Prime Ministers that followed Thatcher: Major and Blair both also had the good fortune to preside over the North Sea oil bubble. And Blair, like Thatcher, took his country to war and failed to plan for the decline of this energy windfall. Neither of these following PMs deviated from Thatcher’s line; taking the short term opportunity offered by this finite resource with no attempt to either husband it nor use it to invest in its replacement [unlike the other beneficiaries of the North Sea resource; The Netherlands, Denmark, and Norway, all of whom have been more circumspect with their shares]. Also the focus through this period in the transport sector was all on privatisation, PPPs, and other financial rearrangements but nothing on core issues like energy security [part of what is meant by the term sustainability] just gaming the market. In the UK the North Sea hydrocarbon riches have been used by both Parties to pursue social agendas and to fund foreign adventures.

This energy-centred analysis can also be extrapolated to the present which is looking increasingly like a direct continuation of the difficult economic crises of the 1970s in Britain [energy supply costs as cause of economic and social problems]. It’s almost as if the North Sea bounty never happened. Much harder for Cameron to continue Thatcher’s social confrontations without the happy boon of both the oil and its excise revenue. With North Sea production now increasingly in the rear view mirror, it looks very much like a wasted opportunity, most of it sold, after all, at around $10-15 a barrel. Nothing like an unrestrained free market to efficiently strip a resource as quickly as possible [again; compare and contrast to the more controlled exploitation by the other beneficiaries of this same resource]. So whenever I read praise of Thatcher’s or Blair and Brown’s financial management with no mention of the North Sea largess I find it hard to take seriously.

Given the example of Thatcher’s long hold on power and the lasting changes her government was able to make to British society it is easy to see why our current government is so keen on the idea that there must be oil under our land or seas somewhere; bending over backwards with sweetheart deals and law changes to try to entice oil companies to look for it. The search for oil has been going on for many decades here yet New Zealand has always been a net oil importer and the gap between production and consumption [see below] has widened considerably over the last 20 years. Our entire economy is extremely vulnerable to either restrictions in supply or rises in price of this commodity [two sides of the same coin].

NZ OIL 1974-2011

NZ OIL 1974-2011

Therefore I would argue, and the example of the UK North Sea resource supports this, that the far better direction for any government is to work on reducing our dependancy on this very hard to replace input. With urgency. To work towards a situation where the quantities we are either producing or importing are used in the most value-added and vital parts of the economy and not simply squandered on more inefficient and wasteful uses.

Oil can be replaced by other energy sources in many applications [like electricity generation, which largely happened after the 1970s oil shock] but this is most difficult in the transport sector, oil is by far the best and most efficient source of liquid fuels: Oil issues are transport issues and visa-versa.

OIL CONSUMPTION 2011

Because the vast majority of the use [and waste] of oil products is in the Transport sector this is the area that desperately needs new thinking and leadership from all levels of government. This is not easy but there are significant things that can be done now, changes that do not require currently unavailable or unaffordable technologies. For example the provision of much more effective urban public transport and in the electrification of as much of freight and passenger transport systems as is possible. As well as much more imaginative management of alternatives systems like our legacy rail network that are almost certain to become part of the answer to this problem.

The more we can bring that pink line in the chart above down, and in a structural way, the better. Consumption has plateaued since around 2004 but it will take a great deal more effort than just hoping people will buy smaller/hybrid/EV cars or spending enormous sums [virtually the entire transport budget] to straighten out some State Highways to get it meaningfully lower. This is true whether someone gets lucky and finds significant new oil or not; the less we are wasting the more beneficial any find would be [as well, of course, helping to reduce the production of the negative externalities that comes with burning all these fossil fuels]. The key metric for every country is the net figure; imports minus exports and the closer consumption is to zero the better this this sum will always be.

We are, unlike the UK, in a very much better position with regards to electricity generation, and there is still a great deal that can be done to improve from the current 80% renewable figure. 100% renewable generation is an important task; it certainly would be better to not be burning gas and coal to make electricity. [Although they are making some good moves in the UK now too].

Unfortunately I guess our extremely short election cycle is one thing that works against longer term views, but then the UK’s five year cycle didn’t help them plan better for the future either. So the lack of any vision simply beyond trying to maintain ‘business as usual’ for a just little bit longer is really the problem. Shame.

And there is less excuse now with the very clear example above.

27 comments to Oil, Thatcher, and the Wealth of Nations

  • Pete

    The Thatcher – Oil link is common headline grabber, but not very real. The net oil tax income in those years was a few billion pounds a year, useful, but not enough to fix the UK problems by itself. A bit like the GDT-TWI for NZ, nice but not an answer

    • Pete, your numbers are bung, from the Telegraph article below:

      ‘In her first four year term, North Sea revenues contributed £20.3bn to the exchequer – 8pc of the total £258bn of tax receipts over that period, official figures show. Today, as a proportion of the total tax take, that would translate into a £45bn annual windfall – a sum larger than the entire corporation tax bill.’

      But anyway this only looks at the direct tax benefit not at the huge advantage of not having to import that energy and pay for it, like they are now. Underestimate the role of energy as a first cause in economies if you like but you’ll get much else wrong then too. Thatcher would have been a one term footnote without this resource, it enabled her to confront the miners, talk tough to the Soviet Union, and fight Argentina. I guess you also think she beat the miners by being a tough lady or some other nonsense. No she could only do it because the coal could be substituted at power stations with oil. Oil that didn’t have to be bought from Saudi Arabia or Russia. No North Sea oil: no Iron Lady.

      Or as the Telegraphs puts it:

      ‘Like Mrs Thatcher, the Chancellor is trying to transform the economy and, simultaneously, get the public finances under control. But Mrs Thatcher had a trump card. North Sea oil.’

      • Kevyn

        Good analysis Patrick. If you go that next step further and consider the longer term impact of having a large proportion of discretionary GDP flowing out of the economy to pay for imported oil instead of being invested locally in R&D or newer factories and equipment then it should come as no surprise that New Zealand’s economy has fallen so dramatically behind other OECD countries over the past 30-40 years. Between 1970 and 2000 Australia’s proportion of liquid fuels supplied from domestic sources was almost three times better than New Zealand. The collapse in agricultural commodity prices in the 1970s also helped because Australia had diversified into mineral extraction and larger scale manufacturing (supported by it’s larger population base).

        Also important for Australia was it’s use of European style terraced housing in major cities in the 1800s and their widespread use of apartments along tram and rail lines. Both the cultural exposure to higher density transit friendly housing and the fact that urban rail generally uses domestically produced electricity meant that Australian housing and transport investment in the 1970s and 1980s was very also helping to retain funds in the local economy, something that was very important in Europe and even in the USA’s biggest cities.

  • RTE2

    http://www.telegraph.co.uk/finance/economics/9982960/George-Osborne-needs-a-little-of-Margaret-Thatchers-luck.html
    The Dennis T./Burmah Oil tie probably gave a little bit of insight at the time too?

    We tried oil independence via Think Big remember, hence Kaimai Tunnel, NIML electrification,dams etc and look what happened…..

    • Bryce P

      Except we didn’t finish the job. Imagine the port / freight situation today without the Kaimai Tunnel? What if NIMT electrification had included 1,500 kva from Wellington to Auckland? How much difference would that have made?

      • Bryce P

        As a centre left leaning voter, I can acknowledge the impact that the ‘think big’ projects have made to NZ. The problem, in my opinion, was the time frame as it put spending well past the affordability level, kinda like the RoNS really.

    • Yes and I know this is very unfashionable, especially with the current cabinet, but that is the kind of response that I do think is required now. What is different now is the huge rise of Asia as an energy market and the decline of the three fields that produced the cheap oil of the 80s and 90s. North Sea, Alaska [Prudhoe Bay], and Mexico [Cantarell]. These are the resources, importantly all in non-OPEC countries, that gave the west a couple of decades and undermined the value of the energy independance investments of Think Big. They are all in decline now, have not been replaced by new finds, with very difficult outcomes for all three countries, [less so the US with its current but brief boom in tight oil].

      It is commonplace to mock Think Big, hard not to with a name like that, but I think the wrong lessons have been taken from that experiment. Ask, English, Joyce, and Brownlee and they’ll all say that it proves that governments should never plan or guide investment [except in motorways for some reason] and the the market will always ‘find’ or ‘make’ new oil. It somehow has proven that a finite resource isn’t and that nothing changes. We will see.

      • Fooman

        One thing that Think Big did for the country was reduce the balance of payments deficit by a significant amount

        It can be seen in the line chart above – the dip in oil imports around 1986 was purely due to the switching on of the Motunui Synfuels plant, which started supplying ~ 50% of NZ’s transportation fuel requirements with the cleanest petrol in the world (no sulfur in the synthetic product). Of course, since the early 90′s when Methanex bought the plant, it produced less and less petrol, and more and more methanol, until finally the synfuel train was mothballed, and eventually scrapped a few years ago.

  • As a long-time follower of the peak oil debate, it’s good to see more forward-looking analysis of the management of this vital resource. I would not be too surprised if there were some large stocks of oil to be found around NZ, which may have serious implications for the political climate.

    The National government’s attempt to outlaw protest at sea is concerning. It may also be a sign that the development prospects are poor for new offshore oil.

  • Greg N

    Yes, the UK unlike Norway has totally squandered the legacy of North Sea oil and now has little to show for it.

    The UK did have a plan similar to Norway to sequester the oil wealth for future generations – through an entity called National Oil Company (NOC) but when Thatcher became PM she axed it and used the reserves then and there to prop up the economy for a few years..So its tempting to imagine “what if NOC still existed?”

    And If you consider this “what if” along the same lines of what if the ’72-’75 Labour Governments “National Super” portable personal superannuation (similar to KiwiSaver now) which Muldoon axed when became PM did survive.

    Then you can perhaps consider that if both the UK and NZ had followed these related but separate paths (which were both axed for policital expediency at the time) then its likely both countries would be in totally different and better situations than now.

    I guess Oil (and Gas for NZ) is always an easy way out to todays problems. I see a danger for politicians to take hard decisions of today for tomorrow when there is plenty to be had.
    And this not only robs future generations, it also reduces resilience and flexibility in the economy.as it stymies development of alternatives for when the current glut ends.

    I also heard a similar warning bell this morning when Shell were on the radio talking about the massive Gas field(s) off Taranaki coast they are testing now.
    The comment from Shell was its several Maui sized gas fields adjacent to each other or one very large field.

    With such a cheap and easy source of energy available, investment in sustainable long term alternatives will be stymied for yet another generation or two as politicians take the easy route again with the cash and other benefits such fields give.

    .

  • George D

    It’s interesting to see that oil use in the UK is roughly what it was in the early 1980s. Per capita use has probably declined (because of a modest increase in population over that time). In NZ we’ve seen both per capita increases and an absolute increase; our policies have been set up to squander rather than optimise energy use.

  • Neville

    The problem with making the NZ. transport fleet use less oil is the way the car companies rip off NZ buyers. An electric Nissan Leaf imported from Japan sells in the USA (before subsidies )for USD 28,000. Convert that to NZD @0.85 is NZD 33,000 + GST $38,000. List price Nissan.co.nz $69,700.

    • Ari

      wow, that is a big price difference. cheaper for me to just convert my own car. Though I assume shipping costs and shipping insurance cost several thousand as well to NZ. not as cheap as China to USA.

  • Owen Thompson

    Ding, dong, the witch is dead.

  • Rob L

    A large Coal-to-liquid plant in southland is an obvious answer. It can produce fuel for far less than the $100 a barrel prices we buy at and would contribute massively to the industrial engineering and technology base in NZ without having to pay huge ongoing sums to multinational oil companies. It would also fixing most of our balance of payments issues, and has none of the uncertainty and long lead times of offshore oil exploration in difficult waters far from large scale oil infrastructure. .

  • Very interesting article and useful comparison of NZ to GB. I will try to add some information from Canada too. In Canada, we are starting to face simillar crisis that underwent in the 80s in GB. There is a considerable shorage of manual work while the oil sector is starting to boom. Alberta province is becoming the key to our economic policy and agreement with US about building Keystone Pipeline XL is now the most important domestic policy of Harper´s government.
    More revenues from oil sector from vast resources we still possess can be an important element in the re-election of the current government. They will be able to maintain economic growth (which I consider a completely misleading factor), which would in consequence help them to maintain themselves in power.
    But the main problems will perpetuate. Our demography is not looking good, many young people are highly indebted and the prices of education and housing are looming. Our government is lacking its ability to flexibly adress those problems and rather focuses on helping big corporations to extract oil and sell it with high revenues. I can see the same pattern in GB in the 1980s and in a long run, Thather´s policy was far from being succesful. As you correctly wrote, she was just in right moment in right place.

  • I am really shocked by the info of this website and i am glad i experienced a seem over the weblog. thank you so a lot for sharing this sort of wonderful data.

  • A more precise breakdown of the rise and decline of North Sea Oil here:
    http://theoilconundrum.blogspot.co.nz/2013/04/the-rise-and-decline-of-uk-crude-oil.html

    Including this graphic:

  • could you please add a direct link to Jonathan comment on the oil drum ?
    (so that the links also work)
    And I can’t find it back for some reason.

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