North Sea Oil Industry Down but Not Out, Insists Lobby Group
The oil industry is fighting off lame duck claims as forecasts from a financial watchdog show the once powerful sector needs subsidies from the Treasury for survival over the next five years.
The Oil & Gas UK lobby group insisted the offshore business was down but still vibrant, supporting hundreds of thousands of jobs and with £19bn being invested into new projects west of Shetland and elsewhere this year.
“This is a national resource that over 40 years has paid £330bn of taxes and never been subsidised. There is huge potential for hundreds of millions of pounds to be paid in future taxes as the oil price recovers,” a spokeswoman said.
But critics say the North Sea is rapidly turning into a dead sea and that it is wrong for George Osborne to provide a £1bn package of tax breaks when carbon-producing fossil fuels should be buried not resuscitated.
The chancellor’s decision in the budget to abolish petroleum revenue tax and halve the supplementary charge on offshore operators came as the Office for Budget Responsibility forecast the industry would pay no tax this year.
And the OBR predicts that from 2017 the Treasury will be out of pocket by about £1bn annually as a once great cash generator turns into an industry that needs handouts.
The oil and gas sector has been battered by a collapse in the price of commodities. Brent crude has fallen from $115 (£71) a barrel in June 2014 to its current level of about $40.
The OBR forecasts on oil tax revenues is based on a $44 crude price presumption, which some say is pessimistic. Oil & Gas UK declined to make predictions on prices.
But North Sea annual tax revenues, which once climbed to more than £12bn, have also been hit by the gradual run down of production as wells run dry and the number of new finds dwindle.
In 2004, output from the UK was more than 2m barrels a day, but this dropped to 850,000 barrels by 2014. This latter figure compares with 11.5m barrels from Saudi Arabia and 11.6m from the new US onshore shale fields.
Richard Howard, from the centre right Policy Exchange thinktank, said it made sense to help the North Sea oil industry as the chancellor had done, as Britain would otherwise be even more dependent on foreign imports.
“The UK is still reliant on fossil fuels,” he said. “If the Treasury did nothing then you would just see the global companies that work there go elsewhere and the North Sea would decline even more quickly.”
