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UK taxpayers to foot £24bn bill for oil field closures in North Sea

A British offshore oil platform in the North Sea's Magnus field. (File photo)

British taxpayers might be forced to burden a £24 billion bill if the UK government decides to decommission its oil and gas fields in the North Sea, according to a new report.

The new estimate, put forth by the energy research group Wood Mackenzie on Sunday, exceeds the UK Treasury Department’s £16 billion forecast by 50 percent, according to the Financial Times.

The group warned that plugging wells and dismantling platforms and pipelines at the fields in question would require the companies to spend £53 billion while half of the amount is claimed back through tax relief.

According to a British law, which is aimed at encouraging investments in the North Sea projects, decommissioning costs will be subsidized by the government using tax money.

To put it simply, while oil companies are required to foot the decommissioning bill, the British taxpayers will bear the brunt of the costs.

The decommissioning process for the current gas and oil fields is going to take at least 40 years. However, around one fifth of the spending is expected to occur in five years, meaning that the Treasury should shell out about £5 billion by the end of 2021, Wood McKenzie said.

This is while, last year, the tax relief exceeded the revenue due to historically low oil prices, with official estimates forecasting the gap to reach £500 million this year. Nearly £6 million has so far been spent on the decommissioning process.

Fiona Legate, an analyst at the energy research firm, told the FT that the North Sea is turning into “a significant annual expenditure for government, rather than a provider of income,” a trend that she said would go on for the next few decades.

Estimates by the Oil & Gas UK, another British energy firm, show 43 billion barrels of oil have been extracted for the North Sea since 1967 and there are between 10 billion and 20 billion barrels left there.

Effects on Scottish independence bid

The news blows a whole through the Scottish National Party (SNP)’s plans for a second independence campaign.

SNP leader Nicola Sturgeon pledged in the party’s failed 2014 independence campaign that Scotland could manage the decommissioning cost if it departed from the UK.

Now that Sturgeon’s differences with UK Prime Minister Theresa May over Brexit has raised the possibility of a second independence attempt, SNP finds itself in a tough position as oil prices have plummeted from more than $100 in 2014 to around $53 in December 2016.


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