by a Newsnet reporter
Yesterday, saw the publication of the annual activity report of the UK Oil and Gas industry. The report stated that oil and gas production continues to be a mainstay of the UK economy, supports hundreds of thousands of skilled jobs and meets the majority of the UK’s energy requirements.
The sector provides a major boost to public finances, the report shows that over 40 billion barrels of oil and gas equivalent have already been extracted from the UK continental shelf over the past 40 years.
The country remains a globally significant producer of oil and gas, with an average 2.2 million barrels of oil and gas equivalent per day produced in 2010. Government as well as private companies benefit, as income tax revenues and national insurance contributions flow directly to the Westminster Treasury. Together with corporation tax paid by supply chain companies, this is estimated at £6 billion a year.
But this is more than matched by the tax paid on production itself, £8.8 billion in 2010-11, which constituted one fifth of total corporation tax received by the Exchequer. The proportion paid by the oil and gas industry on production is forecast by the Treasury to increase further in 2011-12 to over £13 billion, or just over a quarter of the expected total corporation tax. The high proportion of Corporation Tax generated by oil and gas production may explain Westminster’s reluctance to devolve control of the tax to Holyrood, despite its willingness to devolve control of the Tax to the Northern Irish Assembly.
The revenues and benefits generated by oil and gas production are expected to continue for several decades. According to Mr Malcolm Webb, chief executive of Oil and Gas UK said: “For decades to come, it is clear that on practical, technical and cost grounds the UK will still require oil and gas to provide the bulk of its energy. Making full use of our own significant remaining oil and gas resource – estimated to be up to 24 billion barrels – will ensure the sector continues to contribute to the UK economy in the years ahead and strengthen the country’s manufacturing and engineering base through the industry’s technology driven, high value-adding, world class supply chain.
“I firmly believe that this is an industry that can continue to make a major contribution to the UK economy and UK security of energy supply for decades to come. Our globally recognised expertise in oil and gas related technology, engineering, manufacturing and services provides a fantastic platform for the future – both domestically and in overseas markets.”
Investment in the industry continues to grow, however the report highlights how the surprise extra tax announced by the Treasury in March had shaken the industry’s confidence. The value of projects was reduced by almost a quarter overnight and the positive effect of new field allowances that had specifically been put in place by the Treasury to encourage investment in technically challenging, small or remote fields was significantly eroded.
Concern has also been raised that the UK’s focus on nuclear energy will further damage the oil and gas industry and will inhibit the development of cross-over skills and technologies which could be of benefit to the new green economy.
Commenting on the report SNP Westminster Energy spokesperson Mike Weir MP said: “The oil and gas industry continues to be a vital part of our economy and clearly there continues to be a long term future for the industry with as much oil left around our shores as has already been extracted. Oil and gas will continue to provide a very significant number of direct and indirect jobs for a long time to come.
“It is particularly important that the industry is at the leading edge of engineering. These developing skills are not only vital for oil and gas but provide a huge opportunity for cross over into the new green economy of offshore renewables.
“Unfortunately the present UK government has seen fit to damage the prospects of the present industry by sudden tax changes and the future industry by its watering down of attempts to create a greener economy.
“This demonstrates yet again the necessity of Scotland getting the full economic powers of independence to ensure that we develop existing industries and build a new greener economy for the future.”