This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Prime Minister today (24 February 2014) commited to essential steps to increase the economic benefits from North Sea oil and gas, which the Wood Review argues could be worth up to £200 billion over the next 20 years.
By accepting and fast-tracking all the main recommendations of Sir Ian Wood’s ground-breaking review into maximising North Sea revenue, the government can support the industry to recover 3 to 4 billion more barrels of oil than would otherwise have been produced.
The UK government, with its large consumer and tax base, can afford to support the industry and make it profitable to extract the increasingly hard-to-reach oil and gas in the North Sea. This will take us as close as possible to the highest estimates of recoverable oil reserves.
The government has already provided big tax incentives to support extraction as part of its long-term economic plan – including a £3 billion allowance for large and deep fields like those West of Shetland, and a £500 million allowance for large shallow-water gas fields - and has provided certainty on decommissioning relief worth £20 billion.
This has already started to unlock billions of pounds of investment and will guarantee the value of North Sea oil and gas for decades into the future, providing a stable environment for the industry to plan and invest with confidence. It will also secure thousands of jobs in Scotland and across the rest of the UK.
The measures announced today include:
a joint commitment between government and the industry to ensure production licences are awarded on the basis of recovering the maximum amount of petroleum from UK waters as a whole rather than just each individual licence block
greater collaboration between industry and government, for example by better sharing infrastructure, geophysical information and cutting red tape
a new independent regulator to supervise licensing and ensure maximum collaboration between companies to explore, develop and produce oil and gas
These steps - good for the economy and good for jobs - will increase our energy security and reduce our reliance on imported oil and gas, which is one of the main drivers pushing up people’s bills.
Prime Minister David Cameron said:
For many years the UK has supported the North Sea oil and gas industry and we have worked together to make this an economic success the whole country can be proud of. I promise we will continue to use the UK’s broad shoulders to invest in this vital industry so we can attract businesses, create jobs, develop new skills in our young people and ensure we can compete in the global race.
Secretary of State for Energy and Climate Change, Edward Davey, who commissioned the Wood Review said:
Britain will still need large amounts of oil and gas, even as we cut our carbon emissions over the coming decades. So with recent large falls in North Sea production, I commissioned this report from Sir Ian Wood to see how we can reduce the oil and gas we would otherwise import by boosting UK offshore production.
Since oil and gas was first discovered in the North Sea, 42 billion barrels have been recovered. However whilst short-term prospects are good, with investment at record levels, the UK Continental Shelf faces unprecedented challenges.
Tax revenues from oil and gas in 2012-13 were £4.7 billion lower than the year before - a drop of more than 40%. While the UK’s broad and diverse economy is able to absorb this volatility, this equates to more than one third of Scotland’s health budget or two thirds of Scotland’s spending on education.
The UK is well placed to absorb the shocks of oil price volatility that would dramatically affect a small country’s budget. The Office for Budget Responsibility’s forecast for North Sea revenues over the next 3 years was cut by almost £4 billion at the Autumn Statement, but instead of needing to cut spending the Scottish government will see its budget rise by more than £300 million. Scotland benefits as part of the UK from being able to pool resources.
The oil and gas industry already employs 450,000 people in the UK and should do so for years to come when Sir Ian Wood’s recommendations are implemented.
For further information on the Wood Review please contact the Department of Energy and Climate Change press office on 020 7215 3505.