THE cost to the UK taxpayer of decommissioning oil and gas assets could be much higher than the £24 billion official estimate, MPs have warned in an assessment that could stoke concern about the outlook for the public finances.
Public Accounts Committee (PAC) members have highlighted significant uncertainty over the cost to taxpayers of decommissioning offshore oil and gas assets in a report published today.
Read more: Oil price warning bodes ill for North Sea
Their report also sounds the alarm about the potential cost of decommissioning
assets used in fracking for oil and gas. It complains about a “worrying lack of
understanding” in Whitehall about the
practicalities involved.
The findings will make challenging
reading for ministers amid concern the UK could fail to capitalise on opportunities that will be created as firms grapple with the challenges posed by decommissioning as fields run dry in coming decades.
Read more: Ministers accused of 'failure of leadership' on North Sea decommissioning
The PAC complains the Government department responsible for energy matters does not yet have a clear plan to ensure the UK maximises the benefit of developing exportable decommissioning skills and resources.
The report berates the department for the lack of progress made towards developing schemes to use redundant oil and gas
assets for carbon capture and storage to
help tackle climate change, while noting associated policy challenges.
Government support for oil and gas may become incompatible with its long-term climate change objectives, says the PAC.
The report on the public cost of decommissioning oil and gas infrastructure comes weeks after civil servants underlined the importance of the issue with a forecast that the bill for associated tax reliefs could run to £24bn over the next 20 years.
However, chairwoman of the PAC, Meg Hillier, said: “It is far from clear what these costs will be in practice.”
Read more: Scotland losing out on £40bn North Sea lifeline
The report said HMRC had based the £24bn estimate on what may have been an overly optimistic assumption regarding the likely total decommissioning charges. HMRC relied on the middle of the range of the
forecasts made by the Oil and Gas Authority. The regulator found the costs would be between £45 billion and £77bn.
The commiittee is concerned that HMRC has not estimated what the costs to taxpayers would be if decommissioning bills are at the top end of the range.
It said new field developments could
generate tax revenues but would also add to the total decommissioning bill and increase the future cost to taxpayers.
“The Oil and Gas Authority must bring greater certainty to its cost estimates,” said Ms Hillier. “Together with the Department for Business, Energy and Industrial Strategy it should be transparent about how these estimates measure up to reality, and
explain exactly what impact it is having on reducing costs.”
Ms Hiller, Labour MP for Hackney South and Shoreditch, raised the prospect of taxpayers facing big additional bills for decommissioning fracking assets if schemes are developed by firms that do not have the resources required to pay them.
Read more: SNP ministers delay decision on fracking yet again
“It is concerning that the Department has not yet properly set out the terms for how fracking assets will be decommissioned. It must do so before this industry grows further,” she noted.
The report found the department lacks
a clear plan to ensure the UK exploits
exporting opportunities around decommissioning and that the taxpayer shares in the rewards. Regarding carbon capture usage and storage (CCUS), the committee said: “There is a risk that oil and gas assets are decommissioned before they can be used for CCUS schemes due to the Department’s slow progress at bringing forward CCUS.”
Oil and gas production taxes generated £2.1bn for the Treasury amid the boom conditions seen in 2014-15. Two years later, following the oil price plunge, the Government provided £300m more to the industry in reliefs than it received in production taxes.
Industry body Oil & Gas UK said in September that production taxes could generate more than £2bn in the current fiscal year following the partial recovery in the crude price since late 2016. It has forecast firms will spend around £1.9bn on decommissioning in 2019.
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