Wednesday, 30 March 2011

Effects of the new UK tax on oil production start to be felt

A story in the Telegraph says:

One of the world's biggest oil companies, Norway's Statoil, has halted work on two North Sea projects because of the huge tax hit on oil fields in the Budget.
It comes after smaller companies such as Valiant Petroleum warned that they are re-evaluating new projects, since the Chancellor increased tax by 12 percentage points to more than 62pc.

There have also been reports that oil majors have withdrawn plans to sell billions of pounds in North Sea fields nearing the end of their lives, leading to fears they will be abandoned with oil still in the ground.

Statoil, the Norwegian state-controlled company, said on Tuesday it will "pause and reflect" on the future of its Mariner and Bressay fields to the south east of Shetland.
Of course, there are pros and cons to this...

On the upside, if oil stays under the seabed for now, it could be extracted later, when North Sea supply has declined further and it will be worth more, and more vital to powering the UK's transition away from oil (assuming we get round to this...). If it stays under the seabed permanently, then that's good for reducing climate change.

On the downside, if existing oil fields are abandoned with oil left in them, it may be that it is difficult (i.e. expensive) to open them up again in years to come, when we might decide we actually really need that oil. In the short term, it will slowly push up oil prices, as new fields come online at a slower rate, so that the declines in output from existing fields are offset to a lesser degree than they would have been.

Overall, my personal opinion is that this is probably positive. It might mean the UK has more indigenous oil left in years to come, when imports have dried up. If abandoned fields can not be accessed again, this won't be the case, but at least then that's some CO2 not released to the atmosphere.

What might have been smarter would have been to have this new tax on oil production, but to also have kept the planned rises in fuel duty, spending the combined revenue on improved and maybe cheaper public transport. But budgets aren't often about doing what's smart, they're about placating the masses to avoid getting voted out of office at the next election, and perhaps also avoiding protests or even riots.

The BBC says:
Scottish Gas-owner Centrica is understood to be reviewing its current and future developments, while Valiant Petroleum also said it had cancelled a project worth up to £93m.
Apparently the government is now meeting with the oil companies to discuss the tax...

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