The government has announced more financial help for the North Sea oil and gas industry.
Chancellor Philip Hammond today announced plans to establish a panel of experts to decide on the best way to squeeze every last drop out of the region’s oil fields in his first and last Spring budget.
The additional measures will go on top of around £2.3 billion the industry received in subsidies from the government over the past three years.
The government has promised to maximise recovery of the North Sea’s oil and gas reserves. But as the oil gets scarcer, the fields become less profitable. The industry argued the tax breaks are necessary for companies to keep drilling — and emitting — rather than decommissioning the projects.
But decommissioning is also expensive, and companies wanted the government to give them financial assistance to cover the costs of removing and recycling drilling infrastructure.
The industry argued this is only fair as the government has also profited from tax receipts from North Sea oil companies over the years, even though the UK has only received a fraction of income that comparable nations such as Norway have collected.
So the industry asked for financial help to keep it drilling, and the government gave these in each of the last three budgets.
Companies also asked for more financial help when they stop drilling, despite profiting from the oil fields for decades, and the chancellor today showed he was happy to oblige.
The issue has become complicated by big players like BP and Shell selling off their North Sea assets as the region becomes less profitable.
The government pays companies the subsidy by refunding them on their tax receipts. But because large companies that have operated in the region for decades are increasingly selling to new, smaller players, there is less tax to refund.
That means new companies are having to pay proportionally more than their larger counterparts to decommission the oil fields.
It’s this problem that the chancellor wants the expert panel established today to address.
And it’s a problem that’s only going to get worse in the coming years. Industry body Oil and Gas UK estimates there are 153 North Sea projects due for decommissioning.
As DeSmog UK has previously outlined, the environmental and social impacts of this are likely to be high. Today’s new measures only add to the public cost of the government’s policy to drill the North Sea dry.
That will likely please the Scottish government, which has been calling for additional help to sustain the dying industry. But campaigners condemned the announcement.
Mika Minio-Paluello, energy economist for campaign group Platform, said in a press release:
“Philip Hammond is standing up for oil corporations at the expense of the British public in today’s budget.
“The government has turned decommissioning into a £40 billion fiscal time bomb, dropped on future generations. While BP and Shell have walked away with billions of pounds in profits, the cost of cleaning up their mess is being shouldered by the public.”
“While our economy will continue to rely on oil and gas for some time to come, this should not mean that the fossil fuel industry should be handed even more in the way of tax-breaks and subsidies to keep drilling.
Greenpeace UK policy director Dogg Parr called the subsidies “outrageous” in a press release. He said:
“Today could have been a turning point for the government’s strategy to invest in the north east. They should be moving away from dirty, old fossil fuels towards backing the thriving offshore wind and smart technology, which could deliver thousands of new skilled jobs. Instead of support for modern clean, renewable energy, the Chancellor is seeking to prop up the oil and gas industry of the past.”
WWF Scotland director, Lang Banks, told Energy Voice ahead of the announcement that:
“The climate science is clear that the vast majority of known fossil fuels need to remain in the ground and not burned.
“If there are to be any type of incentives they should be to support a just transition that enables us to harness the engineering skills currently deployed in the oil and gas industry and apply them to supporting clean renewables instead.”
Main image credit: Foreign and Commonwealth Office via Flickr CC BY–SA