UK government ‘wasting millions propping up dying North Sea oil and gas industry’

The UK is wasting millions of pounds on propping up a dying North Sea oil and gas industry, a think-tank has said.

Green Alliance warned it was not economic to extract more of these fossil fuels from the mature basin as resources decline and the cost of extraction goes up.

Tax relief and subsidies have made the UK “one of the most skewed tax environments in the world” for oil and gas production, its new report said.

Fossil fuel companies received nearly £10bn in tax relief for new exploration in the North Sea between 2016 and 2020, while £3.7bn was granted in tax relief for decomissioning costs, the think-tank said.

But the report warned revenue is expected to drop from the mature basin, as remaining resources become harder to extract.

At the same time, the amount of tax relief given for decomissioning is expected to go up as old rigs reach the end of their operational life, it said,

“The more new extraction is permitted in an increasingly challenging high-cost basin, the more UK taxpayers will be locked into paying for decommissioning costs, in return for declining revenues,” the report said.

Heather Plumpton from Green Alliance, said North Sea oil and gas extraction “no longer makes economic sense for the Treasury, taxpayers or consumers”.

The UK needs to stop giving financial incentives for fossil fuels and “instead support the transition to a zero carbon North sea”, she said.

Ministers have spoken in favour of supporting drilling in the North Sea, claiming it was needed for the economy and the transition to net-zero emissions by 2050.

Reports have suggested six new oil and gas fields are set to be approved in the basin this year, on top of one already given the green light. This sparked backlash from environmental groups, who accused the UK of “torpedoing climate action” and “disregarding science”.

Tory MP Chris Skidmore said: “The North Sea is a mature basin with declining reserves – and it’s vital the UK taxpayer is not left to carry the risk of stranded assets as we transition to net zero. As the former government energy minister who signed net zero into law, I think we need to look again at the tax regime oil and gas companies are operating under to see if the balance is right.”

He added: “The tax regime is failing to reflect the need to transition to lower carbon sources of energy”.

A government spokesperson said the UK was “leading the world in building back better and greener from the pandemic” and the first major economy to commit to net zero by 2050.

They added: “The UK oil and gas industry has paid around £375bn in production taxes to date. Relief for decommissioning costs is a fundamental part of the UK’s tax system, contributing to the safe removal of oil and gas infrastructure from our natural environment whilst ensuring companies are encouraged to invest in the UK.”