Tax cuts for oil companies….

So can someone explain how these can possibly be justified given that they’re in direct conflict with the govt’s CO2 reduction targets, and the fact that oil companies have enjoyed record profits for the past 10 years due to sky-high oil prices. Seems to me that if the oil companies need help then someone should be asking some serious questions of the executives about their ability to plan for the long term.

Have you got anything made from plastic in your house? Do you use car/bus/train/airplane/whatever vehicle yo can think of? Just have a long hard look at why we need oil.
We are too dependent on it I agree but when we lose it (oil companies stopping trading) then we have to buy it externally. Vlad has quite a bit. I’m sure he’d love to sell us some.

much of the record profits have not come out of the north sea over the last x amount of years, truth is the cost of producing out of the north sea is sky high – some what 60% taxes and even 80% on older fields.

all thats going to happen is that the oil companies will go and invest in areas where its cheaper to get the oil much of the reason for this not happening already in many cases is that running at cost or a slight loss is better than the significant cost of decommissioning.

no oil co investing = no tax revenue at all = no jobs = no income tax revenue and alot more signing on.

but i guess you knew all that already.

Oil execs will still make money- hell they still are. – they will just withdraw from the north sea and go about their business.

same as the banks

The UK oil industry has very tax levels. Far more than other industries.

A tax cut will still leave them paying far more tax than the others.

At least we are not giving them money like the useless offshore wind projects, although all the hand wringers on here will think they are such an effective way to reduce carbon levels.

Have you got anything made from plastic in your house? Do you use car/bus/train/airplane/whatever vehicle yo can think of?

You can add almost all medicines to that list too.

The big 5 made profit of $177,000 per minute last year, Corporate greed is why low level jobs will be threatened.

A necessary evil. If they don’t do something then its unsustainable in the long term. And oil prices are so volatile, you have to take the long view. So getting a lower rate of tax (for the forceable future) makes a lot more economic sense than getting no tax at all from an industry that doesn’t exist any more. With the associated additional headache of having lots of (highly skilled) unemployed people, with no highly skilled jobs to go too.

Alternatively they could always allow companies working in the North Sea to revert to the same environmental standards, and employment practices as the oil industry uses in Nigeria.

I doubt this would be a vote winner

At least we are not giving them money like the useless offshore wind projects, although all the hand wringers on here will think they are such an effective way to reduce carbon levels.

I fail to see how you can describe offshore wind as ‘useless’. It may cost a lot at this point in time, and it obviously doesn’t make up the shortfall if you stopped burning fossil fuels, but if CO2 emissions are to be cut even to the ineffectual levels the govt has committed to, then at some point the oil, coal and gas needs to be left in the ground, so why are we investing in oil instead of scaling it down? And by reducing tax, we are giving them money, just by a different mechanism.

To be fair to Osborne (christ! – this is the second time I’ve defended him recently! I feel violated!) he’s just this very morning announced a £1bn Tidal power scheme

So its not like all the money is flowing in one direction. Someone has to pay the taxes to finance the initiatives like this. And the oil industry may be paying a lower rate, but thats still a hefty wedge

I fail to see how you can describe offshore wind as ‘useless’.

Go and work on an offshore wind farm construction project, get to understand how much energy is required to build them and then compare that to how much energy they produce and how much energy is required to maintain them.

As one scientist put it “Offshore wind is the only thing that makes nuclear look cheap”.

war for oil security is also pretty expensive.

so g5604 you believe that because they made heaps of money in other regions they should support the uk O&G sector at a loss ?

As one scientist put it “Offshore wind is the only thing that makes nuclear look cheap”.

I keep reading stuff like this and it makes me laugh. Yes, I agree, preventing catastrophic climate change is very, very expensive (at the moment). And every barrel of oil and ton of coal burnt makes it more expensive. I can’t really get my head around the argument that it’s not worth it cos it’s too expensive. Is a cheap apocalypse better than an expensive one?

I don’t find it surprising that they are “making a loss” in a country with enforced tax laws, while making huge profits in countries with little to no tax liabilities. Sounds like standard global corporate structure to me.

I can’t really get my head around the argument that it’s not worth it cos it’s too expensive.

It’s not really the “expense” but the limitations of the technology. There is only a relatively low amount of power that can be generated and the offshore environment will always be a very expensive and difficult place to work.

IMO the time, skills and money would be better far better spent developing the next generation of modern nuclear power.

The energy payback time on a wind farm appears to be between 6 (Britain) and 9 (Denmark) months. Offshore turbines do cost more than onshore but also have a better load factor.

Let’s assume these figures are horribly optimistic – it would still pay back the energy used in its manufacture and installation in a year or two – even at a optimism factor of ten it pays back inside 8 years.

And they should last 20 years and the bases ought to be reusable in some cases.

The offshore wind farms being installed now are a similar size to, say, Ferrybridge or Eggborough – typical standard sized coal plants. The load factor will be lower but there’s quite a few of them.

Also UK electricity use is falling at the moment and has been for a bit. It will rise if transorg and heat are decarbonised but the underlying load does appear to be becoming more efficient.

We will need nuclear too, but wind has its place.

That might help address your (very valid) concerns gobuchul.

So can someone explain how these can possibly be justified given that they’re in direct conflict with the govt’s CO2 reduction targets, and the fact that oil companies have enjoyed record profits for the past 10 years due to sky-high oil prices

It’s pretty simple really. The tax that is being referred to here is for the production from the UK sector of the North sea, that’s all. The headline numbers that you see for OVERALL oil company profits is world wide and so not subject to UK tax in the same way. At the moment the tax paid by oil companies on their UK production can be as high as 81% for PRT paying fields and around 62% for the non PRT paying fields. The UK treasury and by implication the UK as a whole has done very very well out this arrangment but if it keeps up there won’t be any investment as money is invested elsewhere for better returns and a lot of oil will simply be left in the ground.

It’s not really the “expense” but the limitations of the technology.

And they can’t be overcome with proper investment and long-term strategic planning? Funny how in the oil industry any technical problem can be overcome, but in renewables it’s just too hard and expensive.

IMO the time, skills and money would be better far better spent developing the next generation of modern nuclear power.

I’m not against next-gen nuclear, but the lead times for rolling these out is too long to meet the immediate CO2 reduction requirements. We need to be doing everything, not just one or the other.

And they can’t be overcome with proper investment and long-term strategic planning? Funny how in the oil industry any technical problem can be overcome, but in renewables it’s just too hard and expensive.

You can make the wind blow constantly and harder?

Can I just note that on an individual basis each current offshore wind farm is a similar sized (or bigger than) each of the current UK nuclear plants with the probable exception of Heysham. Even then wind farms are getting bigger.

a lot of oil will simply be left in the ground.

You say that is if it’s a bad thing. This is the very problem. Admittedly it’s a long term problem that we collectively fail to recognise or do anything about, but it’s not going away.

You can make the wind blow constantly and harder?

That’s a silly comment. Like anyone is suggesting that the entire national grid will be fed solely from offshore wind. Something tells me the engineers will have though about that problem.

You can make the wind blow constantly and harder?

Funny you should ask that – there are some nice studies that show provided you space the wind farms out enough (round Britain or round Europe, not just a few metres further apart) the wind does blow pretty much constantly.

And it blows harder in winter when you need more power.

Do not discount one of the answers because it is not a total answer. None of the answers is a total answer.

Edit: I’m an engineer who gets paid to think about this sort of thing – at the distribution grid level rather than total energy balance level to be fair.

And now over to Binners.

You can make the wind blow constantly and harder?

You say that is if it’s a bad thing. This is the very problem.

Well if the UK government make a concious decision to do that and accept all the consequences that will follow as a result then fair enough, but to simply have it as a side effect of short sighted taxation policy then yes it is a bad thing.

The fuel price escalator is a brillaint example of using tax to change peoples habits for the sake of the envrionment.
Unfortunatly all it did was prove that we are all prepared to spend a shiot load of money to keep driving and is probably responsible for the whole energy industry charging us lots more than they oughtto, as they realised that we would rather drive and have the central heating on than eat reasonably well or clothe the kids.

Life is non linear, increasing (or decreasing) taxes on the oil industry might not have the simplistic effect on the market that the OP expects.

no oil co investing = no tax revenue at all = no jobs = no income tax revenue and alot more signing on.

i dont like quoting my self but it seems as if it might be relevant here

Oh, oh economics and elasticity, dbcooper?

exactly.
This is the problem when the man in the street thinks he has an opinion on how to run the country..

If it was costing you $60 to produce something you could sell for $60 with the liabilities that come from running a rig, would you do it, plus a lot of companies out there have not been out there 40 years so to say how much a company is making is ridiculous (they are making that money elsewhere in the world).

Go and work on an offshore wind farm construction project, get to understand how much energy is required to build them and then compare that to how much energy they produce and how much energy is required to maintain them.

As one scientist put it “Offshore wind is the only thing that makes nuclear look cheap”.

I know you’re just trolling but this is just daily mail stuff, come on.

I’ve just spent 4 years working in O&G and from where I’m sitting it is a pretty strange industry. Not much time to write now as I’m off to ride by bike, but the human race really have got themselves into a ridiculous reliance on oil in the last few decades. It’s such a short timescale in human history but it’s made so many people so rich and able to influence the lives of the masses, when it’s all over it’ll be like waking up with a hangover and wondering what you did the night before and how you let it happen.

The tax cuts are to protect the jobs and industry here as it becomes uneconomical, which isn’t a problem in the short term, but longer term things are only going to become more expensive. The industry has built themselves up this lovely cosy bubble of power, influence, wealth and crazy salaries and they will do anything they can to stop people bursting it.

If you didn’t see this series it’s really worth watching http://www.bbc.co.uk/programmes/p02gzf5l

The big 5 made profit of $177,000 per minute last year,

They may have done however, that’s global and the big 5 exposure to the North Sea is much reduced and falling. A lot of the North Sea is now run by Small to Medium operators, keeping the taps running on ancient, clapped-out fields.

The worst thing you can do with oil is burn it considering what else you can do with it.

The tax cuts are to protect the jobs and industry here as it becomes uneconomical

I’ve no problem with govt cushioning the impact in a planned scaling back but is that what these proposed tax cuts are about, or are they just a handout to a dysfunctional industry in the same vein as the banking bailouts? It rankles when you think that in the 80s entire industries were wiped out on the basis that the govt couldn’t afford to support them so is this any different?

when the man in the street thinks he has an opinion on how to run the country

Given what the “experts” achieve , and some of what they justify/ignire , its not hard to see why we question the “wisdom”.

It rankles when you think that in the 80s entire industries were wiped out on the basis that the govt couldn’t afford to support them so is this any different?

A tax cut is not a subsidy, they still pay a lot of tax and UK plc likes getting what revenue it can, I’d do the same if the choice was some income or no income.

in the 80s entire industries were wiped out on the basis that the govt couldn’t afford to support them so is this any different?

I don’t think that reducing the tax from sky high levels to very high levels can really be called government support!

EDIT too late …

Given what the “experts” achieve , and some of what they justify/ignire , its not hard to see why we question the “wisdom”.

Or it is a lot harder to achieve what we want than a simple analysis can reveal and the experts are doing their damndest, but the man in the streets simplistic observations with no knowledge of the problem/process do not help.

A tax cut is not a subsidy

Is that not just an accounting technicality? The end result is the same, more money in the oil companies bank accounts, less in the govt’s. And as for subsidies, one person’s subsidy is another person’s investment. And who’s to say that the saved money from the tax cuts is going to be invested in the North Sea rather than used to maintain the shareholder dividend?

The tax cut means that they pay less tax on a barrel of oil produced. No oil, no tax. So they can’t trouser the cash and bugger off. At present there is no profit to be made so there will be no further investment. That’s a lose- lose situation.