Taxpayers face £24bn bill for closing North Sea oil platforms

 

Cash cow sector risks becoming net drain; New doubt on case for independent Scotland

UK taxpayers are facing a £24bn bill for decommissioning oil and gasfields in the North Sea – threatening to wipe out remaining tax revenues from an industry that has been among the Treasury’s most reliable cash cows for decades.

The new estimates show how the North Sea oil industry risks becoming a net drain on UK resources as it enters its sunset years and raises further questions over the fiscal viability of an independent Scotland.

The projections, based on analysis of industry plans for plugging wells and dismantling platforms and pipelines, is 50 per cent higher than the official Treasury forecast for a £16bn liability.

Nicola Sturgeon, Scottish first minister, said yesterday she was “not bluffing” about holding a second independence referendum if Theresa May did not keep Britain in the European single market after leaving the EU. However, the prospect of oil revenues being extinguished by decommissioning costs could make it harder to win the case with voters.

Oil companies are forecast to spend £53bn from 2017 winding down North Sea operations and almost half is expected to be recouped from the Treasury through tax relief, according to Wood Mackenzie, the research group that conducted the analysis.

The North Sea was set to become “a significant annual expenditure for government, rather than a provider of income” in the decades to come, said Fiona Legate, analyst at Wood Mackenzie. Decommissioning is expected to take at least four decades to complete but Wood Mackenzie expects about a fifth of the spending over the next five years, implying a Treasury bill of almost £5bn by the end of 2021.

Royal Dutch Shell, the biggest UK oil and gas group, is preparing to launch a public consultation in the coming weeks on its plans for decommissioning the giant Brent field, which helped launch the North Sea industry in the 1970s and gave its name to the international benchmark price of crude oil.

Decommissioning costs are subsidised under rules allowing oil companies to claw back some of the £330bn of taxes paid since North Sea production began. The tax relief was designed to prevent clean-up liabilities deterring investment.

About £6bn has been spent on decommissioning so far. Last year was the first when tax relief exceeded Treasury revenues from the North Sea as industry profits were hit by weak oil prices. The deficit is forecast to grow to £500m this fiscal year, according to official figures, before returning to modest surplus in the next five years as several new fields come on stream.

The Treasury said it was “committed to maximising the recovery of the UK’s oil and gas while ensuring a fair return for the nation”.

As recently as 2011-12, Scotland’s share of UK North Sea oil revenues was worth £9.6bn. Last year it was £60m.