‘Rethink energy taxes or we’ll close UK gas field’: British Gas owner’s threat to Osborne
- UK oil and gas producers ‘face some of the highest taxes in the world’
- ‘We may choose to buy gas on the wholesale markets,’ warns energy giant
The owner of British Gas has warned it may be forced to shut one of its gas fields unless the Government rethinks its tax hikes.
Centrica’s announcement fuelled concerns that Chancellor George Osborne’s decision to raise taxes on oil and gas could hasten the demise of UK production.
Industry body Oil & Gas UK has also warned North Sea oil platforms could be taken out of service prematurely because of fears over the cost of decommissioning them.
Centrica warned it may not reopen one of three fields in Morecambe Bay which it is closing for maintenance, after Mr Osborne increased the supplementary tax on oil and gas production from 20 per cent to 32 per cent in this year’s Budget.
Liquid assets: Oil and gas companies operating off the coast of the UK face some of the highest taxes in the world
The group warned that UK oil and gas producers now faced some of the highest taxes in the world, making profits on the sites marginal.
The tax increase, which will raise the Chancellor an additional £1.8 billion, is particularly significant for mature fields, as profits on these will be taxed at 81 per cent.
Centrica has closed the Morecambe Bay North and Rivers gas fields for about four weeks’ planned maintenance.
The South Morecambe field has also been shut for an unspecified period of work, and it is this field that may not be reopened.
Instead, Centrica said it may look to buy gas for its customers on the wholesale markets, which could work out cheaper than re-starting the field.
A Centrica spokesman said: ‘Following the increase in supplementary corporation tax in the Budget, UK oil and gas producing fields are now subject to some of the highest levels of tax in the world – our South Morecambe field is now taxed at 81 per cent.
‘At these higher tax rates, Morecambe’s profitability can be marginal.’
‘Accordingly, we may choose to buy gas for our customers in the wholesale markets in preference to restarting the field after planned maintenance.’
Morecambe Bay produces around 6 per cent of the UK’s annual gas requirements, and 12 per cent of residential gas demand.
The company uses the field to ensure the UK has gas when it needs it, such as during the winter, when imported gas is very expensive.
Meanwhile, Oil & Gas UK warned that North Sea oil platforms could be taken out of service prematurely because of fears over how much it will cost the industry to decommission them.
Decommissioning the platforms costs companies around £29billion, but they have previously been able to re-claim some of the cost as tax relief.
However, firms will not be able to claim back the recent increase in the supplementary tax against these decommissioning costs.
Malcolm Webb, chief executive of UK Oil & Gas, said oil companies may begin to decommission their platforms sooner than previously planned in case tax relief falls further.
Mr Webb, who is due to appear before the Treasury Select Committee this week, added that companies feared that there could be a repeat of the windfall tax, given the level of profits they are making from surging oil prices.
He told The Times newspaper: ‘There must be a danger that the uncertainty as to what’s going to be covered by this relief may persuade some people to decommission rigs now.’
Meanwhile, Shell said recently that higher UK taxes and reduced tax breaks for decommissioning rigs might cost it up to £545million next year, raising fears that it could cancel some smaller projects in the North Sea.
Mike Tholen, Oil & Gas UK’s economic director, added: ‘Oil & Gas UK’s activity survey, launched in February 2011, had identified £50 billion of potential capital investment in oil and gas projects around the UK continental shelf over the next decade and longer.
‘It is undoubtedly the case that investors will be reappraising all these opportunities in light of the tax increase announced in the Budget.’