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North Sea ‘crunch’ on way, energy chief warns

North Sea ‘crunch’  on way, energy chief warns
Britain faces an "energy crunch" if steps are not taken to help its offshore sector, an industry leader warned yesterday.

Britain faces an “energy crunch” if steps are not taken to help its offshore sector, an industry leader warned yesterday.

Oil and Gas UK (OGUK) chief executive Malcolm Webb was speaking after figures revealed falling investment and rising costs in the industry.

He said billions of barrels of oil and the gas equivalent could be left unrecovered in the North Sea if the UK Government did not act, increasing the country’s dependence on imports.

He repeated his organisation’s warning that 50,000 jobs could be at risk in the industry if ministers did not take steps to get investment flowing again.

Mr Webb spoke on the same day Gordon Brown told the G8 summit in Italy that the world’s major industrial democracies had to act to prevent oil price rises “choking” economic recovery.

He and French President Nicolas Sarkozy teamed up to warn that prices had been “dangerously volatile” for two years and had contributed to the global recession.

Mr Webb’s comments followed the publication of OGUK’s annual economic report, which showed investment in the offshore industry fell to £4.8billion in 2008 – down £1.2billion since 2006, despite the increase in both oil and gas prices.

Mr Webb warned investment could drop below £3billion in 2010.

There was also a sharp slowdown in exploration, which for the first half of 2009 was down 57% on the same time last year.

OGUK said its figures reinforced a call from the Commons energy and climate change committee for more investment incentives, and Mr Webb called for more help from the Department of Energy and Climate Change, as well as the Treasury.

He said increased investment would come only if costs fell, the tax burden was eased and problems in banking were resolved.

Mr Webb told a press conference held simultaneously in Aberdeen and London: “If we don’t see a turnaround soon, those 50,000 jobs, frankly, are still at risk.

“We have had the credit crunch. Next we will have the energy crunch.”

He added that changes to the tax regime in this year’s Budget were a “step in the right direction”, but they were not enough to trigger a rapid increase in activity.

“We fear the rate of decline in production will accelerate, leaving billions of barrels of oil and gas in the ground, perhaps never to be recovered.

“Similarly, any fall in investment will stunt the growth of our supply chain, which relies on UK Continental Shelf business to provide the foundation for its export activity. The UK simply cannot afford to allow this to happen.”

OGUK specifically called for tax measures to remove the 20% supplementary charge on new investment in existing fields and new field developments, as well as removal of the 50% petroleum revenue tax imposed on incremental investment in existing fields.

A Treasury spokesman insisted last night that the government had worked closely with oil and gas stakeholders over the past three years and announced measures in the 2008 and 2009 Budgets to support further investment in the North Sea.

“The 2009 Budget measures will help bring smaller and more technically challenging fields into production – potentially bringing forward an extra 2billion barrels of oil and gas, increasing the remaining reserves to be recovered from the North Sea by 20% and thus making a significant contribution to the UK’s energy security of supply,” he said.

A Department of Energy spokeswoman said: “We will continue to work closely with the industry to ensure that opportunities exist so that oil and gas which can be economically recovered is not left in the ground.”

Aberdeen North Labour MP Frank Doran said: “It is important that the government keeps very close contact with the industry and monitors progress because it is clear that in the future more incentives will be necessary to maximise recovery of oil and gas in the UK sector.”

West Aberdeenshire and Kincardine Liberal Democrat MP Sir Robert Smith accused Mr Brown of lecturing other world leaders on the dangers that rising energy prices could pose to the recovery from recession, “while failing to encourage production in his own back yard”.

SNP Westminster energy spokesman Mike Weir MP said the report “underlines a pressing need” for exploration and infrastructure incentives.

He said carefully targeted incentives “would cost a bare fraction of oil taxation”.

Steve Robertson, of energy consultancy Douglas-Westwood, said: “An energy crunch is arguably upon us already.

“We have seen a sharp decrease in activity levels this year, particularly in exploration drilling, where capital exposure is substantial. We should not forget this energy crunch impacts throughout the supply chain and operators are now putting huge pressure on oilfield service and equipment providers to cut costs dramatically.”

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