Oil and gas operators in the North Sea have ramped up their lobbying efforts to persuade the government to reverse, or at least dilute, its tax hike on those companies to pay for the cut in fuel duty.
Early on Wednesday Oil & Gas UK, the industry’s lobby group, produced figures showing confidence among producers in the area had slumped.
On a scale from 1 to 100, with 50 being neutral, overall confidence dropped 12 points to 51. For E&P companies, the fall was particularly pronounced, with a 25 points drop to 46, the lowest ever for the sector. Confidence among major producers, meanwhile, was 21 points lower at 39.
The tension between oil companies and George Osborne surrounding North Sea oil taxes has deepened.
But Statoil’s decision to put two projects on hold represents only one part of this clash. The other is from investors, who warn that it is not just current projects that are under threat, but long-term investment.
George Osborne reiterated today the UK government’s “determination to be the greenest government ever”. But given what we already knew, most of the new information contained in Wednesday’s Budget seems to be set against that agenda.
Let’s take the measures one-by-one:
1) CCS support. We already knew that £1bn was pledged for round one. The new information in the Budget is that round two will be funded largely by the carbon floor price.
But as Mr Osborne himself admitted, this won’t be enough (at least at the level it has been set) on its own. Further money will be required from general taxation, which leaves second round CCS projects fighting alongside everything else for a rapidly diminishing pool of government spending.
George Osborne, the UK chancellor, has just announced his tax measures for the next year, and the biggest surprise came with a cut to fuel duty, to be funded by extra charges on North Sea oil producers if the oil price remains over a certain price somewhere around $75 a barrel. The supplementary charge for such companies will now go from 20 per cent to 32 per cent.
So the North Sea’s big oil and gas producers must be suffering, right? Well, no.
For the big companies this means little – the North Sea is a declining asset, which will not mean much in the long term, and the £2bn raised altogether from this tax is nothing compared to their incomes (for comparison, Shell’s pre-tax net income last year was $35.3bn, about £21.7bn). That’s why their share price hasn’t budged in reaction.
George Osborne did not spend much time talking about the energy industry today, but the spending review contained some important new figures and policies. Here, then is the spending review – as far as it effects the energy industry – in numbers.
The amount to be spent on the UK’s CCS demonstration.
To be spent on developing new green technology, including offshore wind and developing port infrastructure.
To be spent on funding the green investment bank.
Average yearly fall in the DECC budget.
Average yearly fall in the Defra budget.
The amount being spent on the renewable heat incentive over the next four years.
The fall in feed-in tariffs planned for 2012 – the same as planned by the previous government.
It’s the big day. Finally we see what the UK government’s spending plans are going to look like over the next four years. But what will George Osborne’s announcement mean for the energy industry? We asked a group of experts, industry insiders and campaigners to give us their view on the main things they want to hear from the chancellor. Here’s what they said: