Government tax receipts from North Sea oil and gas producers will be down by 94% this year to just £130 million, the UK’s Chancellor, George Osborne revealed yesterday.
The revelation was made as part of the Chancellor’s Autumn Statement and Spending Review, which included no new fiscal support for the beleaguered industry, which has been hit hard by a fall in oil prices from more than US$100 a barrel last summer to around $45 a barrel.
What’s more, the body which made the forecast, the Office for Budget Responsibility (OBR), says it does not expect the price of Brent crude to rise about $60 a barrel over the next five years.
The OBR’s forecast for UK oil and gas revenues is now just £130million for this year, down from £2.2 billion in 2014/15. Four years ago the Government took a £11 billion in tax receipts.
Efforts to develop carbon and capture storage (CCS) technologies, which could see carbon extracted from power generation facilities and then pumped into depleted offshore hydrocarbon reservoirs, took a hit in the Autumn Statement, with a £1 billion fund two projects had been vying for shelved.
The Scottish Carbon Capture and Storage trade body and the Institution of Mechanical Engineers criticized the decision to drop the fund. According to the Energy Technologies Institute, without CCS, decarbonizing the energy system would cost up to £40 billion (US$61 billion) extra per year more.
However, a consultancy which specializes in CCS, Pale Blue Dot, said that the loss of a capital grant might not the be all and end all, as long as long term support, such as through Contracts for Difference, are in place, which it understood to be so.
Commenting on the budget, Mike Tholen, Oil & Gas UK's economics director, said: “Since the last Budget, the oil price has declined further, and we must continue to do as much as we can to help boost confidence and encourage investment in the UK Continental Shelf. If the oil price continues to be lower for longer, there is little doubt that alongside industry’s own concerted effort to improve its efficiency, we will need to work with Treasury on additional measures, including revisiting the current headline tax rate - consistent with the government's commitment to the sector’s tax rate falling over time.
“Oil & Gas UK believes there is room for greater optimism, given the fact that production from the industry is likely to increase this year – for the first time in more than a decade – and is set to continue throughout the remainder of this decade.”
According to the Department of Energy and Climate Change provisional 2015 production figures, UK Continental Shelf (UKCS) production rose 2.5% in 1H 2015 compared to the same period last year. The figures come following years of production rate decline, at rates faster than anticipated, on the UKCS. Between 2010-13, production fell 38% in the basin.
While there were no concessions or indeed taxes for the industry in the chancellor’s statement, the industry would suffer, alongside other UK employers, due to a new levy on all employers, applied on a payroll basis.
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Image: George Osborne
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