The Treasury needs to do more to help the oil and gas industry unlock the £1trillion of oil estimated to be recoverable from the UK North Sea, according to a new report.
Oil and Gas UK (OGUK) says constructive engagement between the sector and the UK Government over the past year has helped to promote investment and increase the reserves planned for recovery, but incentives unveiled in the March Budget did not go far enough.
The industry body’s 2012 economic report highlights the impact of oil and gas production on the UK economy – and how big a hole there would be in the national coffers without it.
OGUK chief executive Malcolm Webb said: “Britain’s offshore oil and gas industry is well worth supporting. It makes a hugely important contribution to our living standards, even in the best of times.
“Right now, that contribution is vital. Without our oil and gas . . . the deficit on the country’s balance of trade would double, half a million or more jobs would be lost from the economy and there would be a £17billion hole in the government’s tax and national insurance receipts for this year alone.”
The report says declining output – 2011’s 19.2% slump to 656million barrels of oil equivalent (boe) was the biggest year-on-year fall on record – means the industry has reached a crucial stage, adding: “The industry and government need to work together to progress the full range of potential projects through to their development. This will mean further changes to the fiscal regime beyond those announced in the Budget.”
Daily production in 2012 was expected to be slightly better than last year, rising to 1.85million boe from 1.8million boe, but any increase is now thought unlikely because of a pipeline shutdown caused by the gas leak on the Elgin-Franklin field. Even so, OGUK believes the “significant economic benefits this country reaps from oil and gas activities” will continue for many years with the right level of investment in exploration and production.
Mr Webb added: “The right fiscal environment, however, is crucial.”
Aberdeen South and North Kincardine SNP MSP Maureen Watt said the report showed the key role in Britain’s economy of oil and gas sector, which also supported over half a million jobs; half of them based in Scotland.
A Treasury spokesman said the constructive dialogue between industry and government highlighted by the report showed Westminster was listening, and it would continue to do so. He added: “The government is committed to maximising investment and innovation in the North Sea.”