When the ‘Natural Resource Curse’ Becomes a Social Blessing: Sustainable Governance of Oil and Gas Development in Shetland Islands

International literature in the 90s used the term “natural resource curse” in order to define the problems created in countries with rich natural resources such as oil. In Brunnschweiler and Bulte, according to current literature, resources are associated with (i) slower economic growth, (ii) violent civil conflict, and (iii) undemocratic regime types.[1] Terry Lynn Karl notes that the exploitation of oil has a profound regional and local impact and the localities where oil is located over time tend to suffer from lower economic growth and lower per capita incomes than the rest of the country, greater dislocations, higher environmental and health hazards and higher levels of conflicts. The consequences put also barriers to economic diversification; have poor social welfare performance, inequality and unemployment. In addition, oil-led development means that countries are overwhelmingly dependent on revenues gleaned from the export of petroleum.[2] This would mean uncertainty when there is oil windfall and fluctuations in the exchange rate.

The case of Shetland Islands sets a new paradigm in the opposite direction. As we will examine below, a cluster of isolated islands in the North Sea have set a World example in sustainable development governance by utilizing their oil and gas resources for the benefit of their people, through the empowerment of the local authorities and the civil society.

Shetland in Scotland, United Kingdom, stretches in about one hundred islands in the North Sea, 640 km away from the Arctic Circle and 360km from Norway. Only 15 islands are inhabited. A cliffy sea landscape 2,702 km of coast, with a varied, rich geology heritage of 3 billion years span.[3] According to 2009 data, the population of Shetland inhabited islands is estimated to 22,210.[4]

Before the oil-extraction era at the end of the 70s, the economy of Shetland was based on fishing. However, good fishing was only occasional which meant that life was difficult for many islanders who were forced to immigrate to other countries. Immigration was a feature of island life for decades, resulting to a dramatic decline of the population.

The causes behind the change in the social and economic context are not found solely in the discovery of petroleum. On the contrary, it was the institutional consolidation of islands capacity building towards sustainable development that brought recovery. During the late 1960s and early 1970s, the strengthening of local entrepreneurship in fisheries, knitwear, agriculture and tourism on one hand and the assistance from the newly-established Highlands and Islands Development Board, brought a better economic position “so to claim that the oil industry needed Shetland more than vice versa”.[5]

The Highlands and Islands Development Board (HIDB) was a regional development agency that was set up by act of Parliament in 1965 to operate in an area of North Scotland that had a wide range of physical and economic disadvantages (poor environment for agriculture, soil of low fertility, distance from established centres of production, small local market areas) and of a distinct culture. The principal objects of the HIDB were defined as i) to assist the people of the Highlands and Islands to improve their economic and social conditions and to ii) to enable the Highlands and Islands to play a more effective part in the economic and social development of the nation. The Board operated in three main fields: “a) the provision of financial assistance to businesses b) the undertaking of development projects carried out ‘at its own hand’, c) advisory functions, social planning, research and long-term economic promotion”.[6] As a result, the establishment of HIDB and the arrival of large employers halted the depopulation of the area. In addition, the oil activity a decade later resulted in the rose of the population by 31% between 1971 and 1981.[7]

It is worth underlining here the HIDB’s strong social purpose of development and the understanding of the ephemeral nature of oil-related industry employment. After careful planning, its physical effects were remarkably limited and the deal struck between Shetland and the oil industry transformed prospects for the Shetland community.[8] In 1991 it was superseded by Highlands and Islands Enterprise (HIE) which operates through a network of Local Enterprise Companies (LECs).

Another strong institutional body that formed the framework where sustainable development governance took place is the Shetland Islands Council (SIC). It is one of the 32 local authorities across Scotland and was formed in May 1975 by succeeding Zetland County Council and Lerwick Town Council. This local government reorganization was the response towards the coming of the North Sea oil and its upheaval.[9]

SIC consists of 22 Councilors serving a population of approximately 22,000 for practically all social and economic issues, such as education, health, roads, tax, culture etc. Councilors have responsibility to the people in their area and a lot of their time is spent listening to local groups and community councils, dealing with local issues and problems and representing their constituents’ interests.

It is important to highlight that SIC is the major employer within the islands, occupying 3,251 employees, consisting the 27% of the active workforce. The Council receives funding from the Scottish government, council taxes, fees and charges. At the same time it is responsible for a number of other accounts from funds from harbor charges, housing rents, returns from investments, revenue funds etc.[10]

SIC’s priority to consolidate sustainable development can also be found in “Shetland Structure Plan 2001-2016”. It is defined: “the basic role of the Structure Plan is to balance the need for development and infrastructure against protection for the built and the natural environment and the interests of established communities. Plan sets out the principles for the way land is to be used….Structure plans are also needed to achieve consistent and coherent development and make an important contribution to sustainable development”. It does recognize that the Structure Plan is only one of the several strategies influencing Shetland’s future, some of these developed at European or national level, whilst others are locally determined. That is why it is obliged to take into account of the land-use implications of all the other strategies to which the Council is committed.[11]

The Sullom Voe Terminal in the Shetland isles is one of the largest oil and liquefied gas terminals in Europe. Constructed between 1975 and 1981, it covers more than 500 hectares and handles production from more than three dozen oilfields operating both east and west of Shetland. Around 30 different companies have interests in the terminal, which receives productions through pipelines systems and by shuttle tanker.[12]

The building of the terminal brought a challenge of problems and benefits. In order to control the new challenge, the Shetland Islands Council was formed and given power and money by the national government enabling it to combine the roles of mainland, regional and district councils to control all the oil industry development. It should be underlined here that the oil companies in response, approached the local authority to create an environmental forum to monitor the Sullom Voe area; According to ‘Shetland Times’ newspaper: “the Council playing David to the oil industry’s Goliath, managed to secure what seems like a superb compensation deal for the disturbance caused by the oil industry. The profits from the deal went into a specially created charitable trust, managed by SIC. In 2010 the trust’s coffers had 40 million pounds”.[13]

Sullom Voe Association (SVA) was created by Shetland Islands Council and the two major pipeline groups that use the Sullom Voe terminal. The initial environmental forum became the Shetland Oil Terminal Environmental Advisory Group (SOTEAG) to monitor Sullom Voe, and was in charge with examining and advising on the environmental implications of the terminal. SOTEAG consists of 15 members from the civil society and the government: universities, oil industry, marine interest groups, government agencies even an organization for the birds. SOTEAG is an independent and unbiased group that advises, monitors, and reports on the environmental impacts of the oil terminal and shipping operations on Sullom Voe and the surrounding area. A second entity created by Sullom Voe Association (SVA) is the Sullom Voe Oil Spill Advisory Committee (SVOSAC), responsible for providing advice on oil spill, containment and recovery and in charge to oversee oil spill planning operations and prevention in the Sullom Voe area.[14]

According to ‘The Shetland Times’ report, in 2010 Shetland Islands Council granted planning permission to oil company Total for its £500 million gas plant at Sullom Voe after agreeing to alter its plans so that local businesses benefit from the lucrative construction work. The gas plant is expected to provide construction jobs for four years with up to 500 workers required at its peak.[15] The year after, in 2011, SIC charged Total £550,000-a-year to rent the land for its new gas plant once production starts in 2014. A quarterly levy will also be payable, based on the amount and value of gas and oil condensate flowing in from Laggan-Tormore. Till 2014 the gas company will also have to pay the local authority a rental of £100,000 per year. The Council convener estimated that the economic activity related to the plant would generate in the community about £200 million over 30 years. In addition during the lease negotiations the council secured the legal right to demand access to Total’s meters and records to check that the gas throughput it has declared is genuine.[16]

It worth adding that Sullom Voe terminal makes a significant contribution to the electricity distribution supply network, from the excess energy produced by gas turbines there. It provides a third of Shetland’s power demand and it is considered a clean energy source that offsets power that would otherwise be generated elsewhere using heavy fuel oil.[17]

Community planning, consultation and involvement are considered the key factors for the achievement of Shetland goals for sustainable development governance. Community planning is about citizen’s participation in the decision making process on all the community issues. This can be seen in the actions taken and the statutory framework created by the Scotland government and the Shetland Islands Council for these remote islands.

As SIC defines: “Community planning is about public, private and voluntary organizations working together, and with communities, to improve services across Shetland and ensure they are tailored to your needs. Community planning cannot be an additional or parallel process to the various partnership structures already in place-it should act as the key over-arching framework for other partnerships and initiatives at the regional, local and neighborhood level.” The Community Planning Partnership and the Community Planning Delivery Group are responsible for the strategic overview of community planning in Shetland.[18]

A number of measures and actions were developed to strengthen community involvement. Annual Single Outcome Agreements (SOAs) set out the priorities between central government, local authority and other key partners (voluntary sector, businesses etc.) at the local level. They allow greater flexibility for local solutions to local circumstances, helping to devolve decision making away from central government and reduce bureaucracy. Having everyone committed to the same agenda as their starting point for planning service development and delivery is critical for its success. For example the shared outcomes of SOA for 2011-2012 are on issues concerning future population declining numbers, climate change implications and the climate change act implementation, the effects of the global downturn in the local economy, the 500 million pounds gas plant project at Sullom Voe in 2013 and its local job opportunities.[19]

The extensive consultation exercise carried out in 2004 to ask citizens what they felt were going to be the most important issues for Shetland over the next 20 to 30 years, led to the creation of The Shetland Resolution by the Community Planning Partnership, that reflects the community’s future aspirations:

• We’ll seek to create fulfilling, well paid jobs for all, whatever their talent.
• We’ll use the natural resources at our disposal responsibly and seek more control over them.

• Recognize that our livelihood depends on our environment;
• Work with nature in all its diversity, not against it;
• Restore our environment where it has been damaged;

The small population of Shetland which is dispersed throughout the islands and the awareness that “no one place or community is the same as the other” led to the decision that ‘the one-size-fits-all” approach from the capital would be ineffective and has to go as local as possible. Thus the Local Service Delivery Groups (LSDG) in each locality are local service providers and community representatives that work together and closer to communities in order to help them find some of their own solutions to local services needs.[21]

According to the Shetland Local Plan adopted in 2004, the coast is considered a valuable economic, environmental, archaeological and social asset. It is highly protected against inappropriate development and only developed, regenerated or restored where necessary, in a sensitive way.[22]

United Kingdom is applying the European Union Strategic Environmental Assessment (SEA) on the offshore energy licensing. According to SEA procedure, an environmental report of a “sufficient quality” and after extensive consultation is prepared, in which the likely significant effects on the environment and the reasonable alternatives of the proposed plan or programme are identified. The SEA Member States must monitor the significant environmental effects of the implementation in order to identify unforeseen adverse effects and undertake appropriate remedial action.[23]

A SEA process has been followed for the Shetland Marine Spatial Plan (MSP) that is under public consultation and trial implementation since 2006. The Plan represents an innovative approach to marine planning, by establishing an overarching policy framework to guide the placement of activity, from marine renewable energy to aquaculture so to make marine management more efficient, inclusive and accessible now and for future generations.[24] The SEA in this case identifies, describes and evaluates the likely significant effects on the environment of implementing the Plan. MSP although a non-statutory document, seeks to foster shared understanding and to promote consensus as to how and where marine management can lead to community benefits and economic regeneration. It is recognized that Shetland marine area is an area with a wealth of social and cultural environmental and economic resources that are increasingly coming under pressure from the aspirations of a growing number of users.

Interestingly, although the MSP considers Sullom Voe’s role as major oil landing facility to continue for the next 20-25 years, at the same time it urges early considerations to be given to what occurs post-Sullom Voe and the future prospects of the port. Any development would have to be compatible with aquaculture and fishing industry, together with providing a habitat for a wide range of flora and fauna including some internationally protected and rare species. Understandably, as according to a 2003 socioeconomic review, aquaculture and fishing were the major sea industries with 112 businesses of a total of 144, and with a turnover of £124 million from a total of £302 million deriving from jobs around Shetland Sea.[25]

Shetland Islands managed to reverse the ‘natural resource curse’ into a ‘social blessing’ by proactively establishing the legal framework that would protect and strengthen the community’s interests. The Scottish government gave local authorities all the power to confront the oil industry’s ‘Goliath’. In addition, the newly-established Highlands and Islands Development Board supported effectively the local entrepreneurship in fisheries, knitwear, agriculture and tourism bringing the island to a better economic position “so to claim that the oil industry needed Shetland more than vice versa”. Furthermore, Shetland Islands Council included in their long term plans and strategies the International, European Union, National and Local policies and principles to secure the achievement of sustainable development governance goals, such as the continuous citizen’s participation in the decision making process on all the community issues through an exceptional network, to include all dispersed localities. The profits from oil and gas business are shared within the local community through social investments. As a result, cooperation between Shetland and the oil industry is a win-win situation. Oil industries not only have fully complied with the requirements set by Shetland Authorities and Civil Society, they do support their policies, having realized this to be the guarantee for their own sustainable financial development. For example, being the focus of what is believed to be the most intensive monitoring programme of any industrial installation in the UK, Europe or elsewhere, Sullom Voe Oil and Gas terminal is one of the cleanest oil ports in the world, with no harmful effect in the harbor’s rich marine life.[26]

Despite Shetland’s remote location and small population, their successful off-shore oil environmental management is considered a model to study and adopt. The Alaska Citizens Council in Alaska was formed after the Exxon Valdez oil spill in 1989 and based their structure and function on the Shetland Islands Council (SIC) model.[27] The stakeholders of a West African offshore oil development and maritime oil transport invited the Shetland advisors to present the island’s Sullom Voe port as a case of best practice in port management and tanker traffic control systems.[28] The Washington Oil Spill Advisory Council, USA, in one of their reports praised Shetland Island’s oil spill prevention program and examined the context of their effectiveness noting: “The Shetland Island’s oil spill prevention program is highly successful and is based solely on adherence to strict environmental standards originally established through a detailed environmental baseline assessment. This baseline assessment was completed prior to commencing any oil operations. The standards are enforced through a partnership of local stakeholders and the oil companies themselves”.[29] The Bank of Scotland Quality of Life annual survey recognized Shetland in 2008 as the place “where living standards are the highest in Scotland”. According to the Chief Economist of the Bank, the residents of the Shetland Islands tend to have higher than average earnings in Scotland as well as a high employment rate; they also have good health, the best education results and suffer low burglary rates.[30] Shetland is also considered a well off place offering many amenities to its citizens such as an excellent network of good quality roads, leisure centers, care homes etc. It worth repeating here a phrase from the Shetland Resolution that was formed by the answers of Shetland citizens: “We may be a small place, but if we’re clever we can be more successful.” Shetland Islands are a World example.

1. Brunnschweiler Ch., Bultey E., Natural resources and violent conflict: resource abundance, dependence and the onset of civil wars, Oxford Economic Papers, 2009, p.651.
2. Karl L Terry, Oil-Led Development Social, Political, and Economic Consequences, CDDRL working papers, no 80, Jan.2007, pp.2,4,24,  http://iis-db.stanford.edu/pubs/21537/No_80_Terry_Karl_-_Effects_of_Oil_Development.pdf
3. http://www.geoparkshetland.org.uk/ .
4. Shetland Islands Council, Shetland in Statistics, p.9,  http://www.shetland.gov.uk/documents/SinStatsBinder1.pdf
5. http://move.shetland.org/economy .
6. http://www.hie.co.uk/common/handlers/download-document.ashx?id…9e63… .
7. Shetland Islands Council, Shetland in Statistics, p.9, http://www.shetland.gov.uk/documents/SinStatsBinder1.pdf
8. http://www.geoparkshetland.org.uk/geological_journey/biodiversity.html .
9. May 14th, 2010, http://www.shetlandtimes.co.uk/2010/05/14/times-past-69
10. Shetland Islands Council Information Supplement, pp.3,12 http://shetland.gov.uk/council/documents/InformationSupplement.pdf
11. Shetland Islands Council, The Shetland Structure Plan 2001-2016, pp.3-4,2000, http://www.shetland.gov.uk/splan/plan.htm
12. Shetland Oil Terminal Environmental Advisory Group, SOTEAG in Shetland-World Class marine Environmental Management, http://www.soteag.org.uk/brochure/soteag_brochure.pdf
13. May 14th, 2010, http://www.shetlandtimes.co.uk/2010/05/14/times-past-69
14. http://www.soteag.org.uk/brochure/soteag_brochure.pdf .
15. Robertson J., ‘Total is granted permission for gas plant –after agreeing to help Shetland businesses benefit’, Feb.24th, 2010,  http://www.shetlandtimes.co.uk/2010/02/24/total-is-granted-permission-for-gas-plant-%E2%80%93-after-agreeing-to-help-shetland-businesses-benefit
16. Robertson J., ’Total to pay £550,000 in rent into council coffers plus gas production levy’, May 3rd, 2011, http://www.shetlandtimes.co.uk/2011/05/03/total-to-pay-550000-in-rent-into-council-coffers-plus-gas-production-levy
17. http://www.soteag.org.uk/brochure/soteag_brochure.pdf .
18. http://www.shetland.gov.uk/communityplanning/ShetlandsCommunityPlanningPartnershipStructure.asp .
19. http://www.shetland.gov.uk/communityplanning/documents/SOAFINAL_201112.pdf .
20. http://www.shetland.gov.uk/communityplanning/TheShetlandResolution.asp .
21. http://www.shetland.gov.uk/policy/LocalServiceDeliveryGroups.asp .
22. Shetland Islands Council, Shetland Local Plan,pp.27-29, http://www.shetland.gov.uk/developmentplans/documents/AdoptedLPpolitics.pdf
23. Strategic Environmental Assessment (SEA) is a process established by European Union for a wide range of public plans and programmes (Directive 2001/42/EC), http://ec/europa.eu/environment/eia/sea-legalcontext.htm
24. http://www.nafc.ac.uk/ssmei.aspx .
25. A Marine Spatial Plan for Shetland Islands, Police Framework, Consultative Draft, 3rd Edition, 2007,pp.11,32,37, http://www.nafc.ac.uk/WebData/Files/Part%200ne%20policy%20Framework.pdf
26. http://www.jncc.gov.uk/Publications .
27. Washington Oil Spill Advisory Council, Report Providing Recommendations to the Governor, the Legislature, and the Department of Ecology on State-of-the-Art Oil Spill Prevention Program,Council Operations and Funding, and Sustainable Funding for the Oil Spill Program, p.56,  Oct.2nd, 2006, http://www.psp.wa.gov/downloads/OSAC/osac_archive_20090701/assets/pdf/finalreport.pdf
28. Kloff S., Wicks C., Environmental Management of offshore oil development and maritime oil transport-A background document for stakeholders of the West African Maritime Eco Region, p.30, Oct.2004, http://cmsdata.iucn.org/downloads/offshore_oil_en,pdf
29. http://www.psp.wa.gov/downloads/OSAC/osac_archive_20090701/assets/pdf/finalreport.pdf .
30. http://move.shetland.org/10-reasons-to-move-to-shetland-v1-0.pdf .