16-05-06
More than half of North Sea oil and gas could be left underground if exploration slips to the levels of just two years ago, according to a hard-hitting government report.
The Department of Trade and Industry (DTI) has warned that if investment levels
do not stay at the current rate, then the entire industry could grind to a halt
within 30 years -- dealing a heavy blow to the north-east economy.
The apocalyptic vision was laid out in research by PILOT, the joint
government-industry planning group, chaired by energy minister Malcolm Wicks.
The report, A Tale of Two Futures, paints the industry in the North Sea as being
at a crossroads between a prosperous future and melt-down.
It says: "If activity were to revert to 2002-3 levels, when exploration fell to
a five-year low, with no new investment coming forward to find and develop
reserves... 40 % of the UK's current offshore infrastructure could be
decommissioned by 2020. The industry would be virtually finished in the North
Sea by 2035, leaving more than 50 % of the UK's oil and gas reserves unrecovered."
The findings represented a thinly veiled warning to Gordon Brown, the
Chancellor, whose 10 % tax rise on North Sea operators in 2002 has been blamed
for the slowdown in investment. Oil executives have criticised the government
for removing fiscal stability in the North Sea -- crucial for companies putting
together long-term investment plans for the region.
But Derek Leith, head of energy tax at Ernst & Young, warned that there was
every chance the Chancellor could increase taxes again in his next Budget --
regardless of the warnings from the DTI.
Leith said: "There is a lot of tension on this subject because there is an argument to having a more rational tax regime... Logically, you might want to change it, but what message would that give to potential investors?
"It could simply force operators to adjust and rework their plans, or it could
make them think 'this is the second change in four years -- these guys are just
going to continuously tinker with the regime'."
The argument for "change" refers to the current tax system, which allows
investors in new oil and gas fields a more lenient rate of tax than those trying
to scavenge leftover oil and gas from the so-called "giant" fields of the 1970s.
In some cases, developers of assets discovered after 1993 -- such as Buzzard --
pay half the rate of tax of those working on sites discovered before that year.
Leith said the 500 mm-barrel Buzzard operation was a strong illustration of the
dilemma, as the bulk of it has only recently been passed into overseas hands.
A spokeswoman for the UK Offshore Operators Association said the PILOT report was not exclusively aimed at Brown, but was intended to encourage co-operation on all fronts to extend the life-span of the North Sea.
"Producers need to invest, and the government needs to ensure the right business
climate," she said.
About 34 bn barrels of oil and gas has been extracted from the North Sea since
1975, but a further 28 bn could still be recovered. The PILOT report said that
if investment was maintained at levels seen in the second half of last year,
then the North Sea could be maintained beyond 2035.
Source: Scotsman.com