North Sea oil doesn't just have an output crisis – it has an economic one

North Sea oil doesn't just have an output crisis – it has an economic one

Elisa Maria Giannetto
Share
An independent study sheds light on the woes of the region's oil operators, which are a net drain on the UK economy for the first time

Remember the North Sea? Since the 1980s, its frigid waters have been the epicenter of an oil renaissance that buried the crisis years of the 1970s under billions of barrels of oil, fueling the Thatcher boom years and putting Norway on the petroleum map. After nearly forty reliable years, the UK is beginning to see the advantage of its North Sea oil reserves drying up, as the entire industry struggles to break even amid historically low prices. An analysis published by climate and energy news site Carbon Brief shows how the price freefall has impacted British oil & gas operators, to the point of costing the UK’s public purse £396 million. This is a dramatic change from as recently as 2011, when crude was priced at $100 a barrel, and North Sea oil was generating over £10 billion for the Exchequer’s coffers. Carbon Brief policy editor Simon Evans explains that this is because, when operating at a loss, UK oil & gas firms are able to reclaim tax paid in previous years: ''The fall in oil prices has had a significantly adverse impact on tax receipts. This is because many companies are making losses in the current low oil price environment''. Another contributing factor to the public revenue drain is the tax relief going to Shell in order to decommission the enormous and now obsolete rigs of the Brent field. The UK Oil and Gas Authority estimates that this monumental undertaking will cost taxpayers some £47 billion by 2050. The Carbon Brief analysis also documents how Shell, BP, Exxon, Sinopec and Hess received over £1 billion in taxpayer-funded relief for decommissioning projects during 2014 and 2015. Also in the North Sea, an unplanned production halt (for maintenance) at the 180,000 barrel per day Buzzard field, coupled with a drawdown in US inventories, has led to a near one-month high in oil prices. Brent has gone up 2% to $54.17 a barrel. According to UBS analyst Giovanni Staunovo, this scenario, which is fostered by the extension of OPEC’s output freeze, should push the price ''above $60 a barrel in three months''. That’s music to the ears of North Sea operators, and not only theirs.