A group of leading gas producers operating in the UK sector has written to the Prime Minister, the Chancellor and the Energy, Business and Scotland Secretaries to express concern over plans to link oil and gas taxation.
The companies are concerned that the resulting tax hike might damage the UK economy because of reduced investment, increased gas imports and higher costs to consumers.
The letter’s signatories represent around 60% of UK gas production and include Centrica, BHP Billiton, DONG Energy, Total and Shell among others.
In it, the companies write how “deeply concerned” they are about Budget proposals “which will subject UK gas and oil producing fields to a tax rate of up to 81p in the pound.”
Until now, oil and gas have been taxed at separate rates. Under the Chancellor’s new Budget plans, these will be linked.
The letter adds: “The economics of new gas projects are already marginal and are significantly less robust than those for oil. Brent crude is currently trading at around $105 per barrel, while UK wholesale gas is trading at only around $49 per barrel of oil equivalent – less than half the price of oil. With production costs comparable for both oil and gas, the increased tax rate is particularly damaging to gas production, which is less profitable than oil.”
Mish Tullar, spokesperson for Centrica told ELN: “The industry is taking a robust and concerned view on the issue. What we’d like to see is the government rethink their view.”
He added that the companies involved in the North Sea were particularly concerned about plans to link gas tax with oil tax.
Guy Esnouf, at E.ON UK agreed. He told ELN: “Clearly the issue is the divorce of the oil and gas price, and why they are now being treated together. It just doesn’t seem logical.”
At the recent inquiry into the tax increase on the oil and gas industry, Energy Secretary Chris Huhne defended the Chancellor’s tax rises as “the right pro-growth decision.”