Tuesday, 2 July 2013

Shale Gas: Northern Renaissance or "Resource Curse"?

Amazing news on shale gas this week, with figures released by the British Geological Survey estimating that Britain may have between 822 to 2281 trillion cubic feet of shale gas, enough for at least several decades supply. Fraser Nelson wrote excitedly in The Spectator, asking whether Britain could become the "Saudi Arabia" of shale.

Oh dear, I do hope not.

Nelson's remark is far, far more telling in political terms than he intended. His article focuses with understandable frustration on the political obstacles, vested interests and stupidities of the green lobby that are delaying our exploitation of this wonderful resource. All these are worth excoriating, certainly, but behind them lurks a much bigger concern: the "Resource Curse".

Because, without wishing to make Roger Helmer spontaneously combust in indignation, if badly handled shale gas could turn out to be an utter, total disaster.

For a long time it was assumed, logically enough, that a country blessed in natural resources would become prosperous in time, leaving those that  were resource poor permanently languishing in their wake. Instead, in many cases a bounty of natural resources can just as often act as a excuse for a corrupt and cynical polity to delay much needed social and political reform. Being able to distribute wealth to sectional interests (as well as create nice sinecures for themselves) puts off the evil day that politicians have to take tough decisions, perhaps even until the resource itself runs out. By then, is it too late.

Saudi Arabia is the prime example of this "Resource Curse": a materially vastly wealthy but socially medieval society that surely would have reformed itself - and not exported it's ultra-extreme Wahhabi Islam - had it not been cursed with a huge fraction of the world's oil reserves. After the wells run dry, it is difficult to see what the Saudi's will be left with.

Although it would be going too far to compare Britain with Saudi Arabia, many people argue that we squandered the proceeds of North Sea oil in similar fashion.

It doesn't have to be this way, of course, and people point with justification to the example of Norway, which set up a sovereign wealth fund that will help secure the lifestyles of it's people for generations to come. Having learned our lesson from North Sea oil, many now say this is precisely what we should do with the proceeds of shale gas.

To which the correct response is: just look at what happened to private pensions.

The fact of the matter is that our corrupt political class have proved that they simply can not be trusted to act so responsibly. Britain private pension system was once analogous in some ways to a sovereign wealth fund: we had put more private savings aside for our future old age than the rest of Europe put together. Then along came Gordon Brown and New Labour who cynically ruined them in order to fund a vast state expansion that would benefit the Labour party's client interests. Whereas Norway benefits from being a highly cohesive monocultural society that can trust it's politicians to plan for the long term in a serious matter, our political culture plainly lacks those attributes. Instead, we are governed by an elite who regard politics as either an amusing tribal game or simply a career to gain entry into the international elite: neither type has much thought for the long term good of society as whole. We should also not forget the potential sinister manoeuvrings of the European Union in all of this, who have already intimated that they would like our shale gas reserves to become a common EU resource. Who can doubt that an ambitious British politician, perhaps with an eye to a future EU position, won't be willing to grant them those rights?

Moreover, however painful the current downturn may be, it has of necessity forced people to look seriously at what has gone wrong in our society and the need to both cut state spending and, in the long term, to reform the weaknesses in our own culture. No one wants to continue wearing a hair shirt unnecessarily, but we must look and see how we can best exploit this wonderful resource in order to build a sustainable economic and social model, and that certainly will not happen if it involves central government collecting the revenues and bunging them out to favourite client groups.

The answer must be to devolve the shale bounty as locally as possible. Granted, George Osborne made some encouraging noises in this direction, but his proposals don't go far enough, and the suspicion must be that the Treasury will conspire to grab the lion's share of the tax revenues.   Instead we must be much more ambitious and use this opportunity to both reignite a culture of enterprise and put rocket boosters under the localist agenda.

Firstly, regarding enterprise, a major factor in the rapid exploitation of shale gas in the United States is that individuals, rather than the State (or "Crown" in our case) own the mineral rights beneath the land. Let us change that and really incentivise exploration. (Of course we can not have a total free for all, and relevant authorities would still need the power to reject planning permission for fracking where it  wasn't suitable.)

Secondly, regarding localism, local governments could also be allowed to tax shale exploration and, in areas where shale deposits lay off shore, to grant and charge for exploration rights. Yes, that may result in a localised version of a "Resource Curse" where local councils cynically line their pockets and bloat their workforce on the proceeds, but localised competition between authorities wanting to develop exploration would help keep such larceny to a minimum in a way that centralised revenue collection would not. Furthermore, localised revenue collection would incentivise local government in partnership with local institutions to develop the necessary infrastructure, both in physical and in terms of human capital and skills, in order to allow the necessary industries to grow. The model for local authorities must be Aberdeen, which despite centralised Treasury revenue collection still managed to turn itself as the local centre for North Sea oil related industries: it's university, for example, runs specialised courses in petroleum geology and other oil and gas related subjects.

Finally, properly localised exploitation of shale gas would allow Northern England to undertake a major, long term and very necessary cultural shift. As it so happens, many of the poorest post-industrial areas of the country lie on or near major shale deposits. By allowing local control of exploration and collection of revenue (in return, of course, for a winding down of central subsidies) many areas of the North would not only de facto be but perceive themselves to be self-sufficient, wealth-creating areas for the first time in a generation, restoring much needed local pride and self-respect. In contrast, centralised revenue collection from shale gas proceeds and churning of the money out as subsidy back to local councils will not have this cultural effect. If you doubt that: look at the sorry cultural state of Scotland today: bitter and more prone than ever to blame English exploitation for it's problems and poverty. In large part this is because it was denied precisely this opportunity during the North Sea oil boom.

The possibility of a cultural and industrial renaissance for the North - a renaissance as great good luck would have it very much in keeping with it's culture and traditions - is perhaps the greatest long term prize of all that shale gas may afford us. Sadly, though, it is not a possibility that our Southern-dominated, Metropolitan political class understands: very tellingly George Osborne, an arch short-termist and political schemer to his core,  concentrated in his recent BBC interview on the benefits of shale gas being primarily one of lower gas bills. An important issue, certainly, but it betrays a pathetic lack of ambition all too common in the Political Class.

Herein lies yet another massive opportunity for UKIP: we have always championed shale gas exploration, but combining shale gas with distribution of mineral rights and a serious, daring localism would prove a massive vote winner in industrial heartlands of the North, where Labour's grip is demonstrably already weakening.  Furthermore, we can present these ideas as a substantial solution to the ever more serious asymmetry in our society between a wealthy London City-state and the rest of the country, an issue which people outside of the South East are ever more increasingly aware of, and ever more profoundly resent.

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