14:26 GMT 09.01.2017Get short URL 85 UK taxpayers face a bill of nearly US$30 billion when the North Sea oil and gas fields are decommissioned, potentially nullifying future revenues from an industry that has been a dependable golden goose for the Treasury since the 1970s. The projection comes from Wood Mackenzie, an energy intelligence firm, and is based on analysis of industry plans for the program of well plugging and platform and pipeline dismantling that are impending as the resources reach empty. Since extraction began in the 1970s, North Sea oil has generated £330 billion (US$407bn) in tax revenue, often reducing the impact of recessions. Decommissioning is expected to take four decades to complete, but while the Treasury forecasts a final bill of £16 billion (US$19bn), Wood Mackenzie believe the true figure will be twice as high, at £24 billion (US$29bn). The report concludes that North Sea oil will be a major net expenditure rather than a source of income for the government until decommissioning is complete. In total, oil companies will spend £53 billion (US$64bn) from 2017 onward on winding down their North Sea operations, but almost half of that sum will be recouped from the Treasury through tax relief. © AFP 2020 / Andy Buchanan Section of the BP ETAP (Eastern Trough Area Project) oil platform in the North Sea, around 100 miles east of Aberdeen, Scotland. (File) Decommissioning costs are effectively subsidized under rules that allow companies to claw certain taxes paid since North Sea production began; in total, firms involved in the North Sea industry have paid £330 billion (US$401bn) to the Treasury since extraction began. The tax relief was originally to prevent clean-up liabilities deterring investors. As of January 2017, around £6 billion (US$7.3bn) has been spent on decommissioning so far, and 2016 was the first year tax relief exceeded Treasury revenues from North Sea oil, with industry profits hit by a weakening oil price. This deficit is forecast to reach £500 million (US$607m) in January 2017, before returning to modest profit in the next five years as new fields come on stream for the first time. © AFP 2020 / POOL / ANDY BUCHANAN A picture shows employees working on the BP ETAP (Eastern Trough Area Project) oil platform in the North Sea, around 100 miles east of Aberdeen, Scotland on February 24, 2014 However, future revenues will depend on oil prices and whether companies invest in further exploration. More than 43 billion barrels of oil and related derivatives have been extracted since North Sea production started in 1967. There are still around 10 billion remaining according to industry group Oil & Gas UK. The forecast could well spell trouble for the Scottish National Party's dreams of independence. North Sea oil was named as a key source of revenue for an independent Scotland in the party's 2014 independence referendum proposal. In August 2016, Scottish government data indicated falling oil prices had already drastically slashed the value of Scotland's share of North Sea oil, reducing annual income to a mere £60 million (US$73m) from £1.8 billion (US$2.2bn) the previous year, in turn dragging the country's deficit to 9.5 percent of GDP — more than double that of the entire UK. Prior to the oil price slump, Scotland's geographic share of North Sea oil revenues was worth £9.6 billion (US$12bn), more than the country's total annual spend of education, environmental protection and training.
The bill to the UK taxpayer for the North Sea oil and gas fields could be twice as high as the UK Treasury forecasts , warns energy intelligence firm Wood McKenzie , which suggests £ 24bn ( $ 1 ) is more likely than the forecast £ 16bn . This could turn the industry into a major net expenditure rather than the dependable revenue generator it has been for the UK government since the 1970s . It could also upset the Scottish National Party 's push for independence as North Sea oil was branded its main source of support for an independent Scotland in the 2014 independence referendum proposal .