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back to article Osborne hands £80m tax break to punters drilling in 'old' oil, gas fields

A new tax break for operators of older "brown field" oil and gas fields in the North Sea shows that the government understands their continuing importance to the wider economy, an energy expert has said. Tom Cartwright of Pinsent Masons, the law firm behind Out-Law.com, said that measures announced by the Chancellor of the …

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These companies are some of the most profitable on the planet. Are sums this relatively small really going to make a difference?

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Anonymous Coward

Why?

Why do some of the most profitable companies receive any form of subsidy from the taxpayer? This is interfering with the Free Market (TM).

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Mushroom

Re: Why?

Only thing that annoys the hell out of me about these companies, year upon year you have people like british gas posting record profit. And yet year upon year we also get letters "We apologize but due to us being greedy douchebags we're increasing the price of gas by 5p a unit, sucks to be you"

I honestly wish there were some kinda cap on how much they could charge for this crap. I mean it's not like a telephone or TV, something you can live without, its a commodity we need to survive. Surely things like that should be capped off based on the current costs somehow.

And of course even though they're getting a tax break further down the line, it's garunteed that later in the year, possibly early next year there will be another round of price hikes on gas and electric.

So random question guys. What's cheaper, gas oven, or electric. Looking to move out soon, considering shifting everything I can to electric for reasons I do not understand.

Image because honestly, somebody should nuke these greedy fuckers.

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Re: Why?

"Only thing that annoys the hell out of me about these companies, year upon year you have people like british gas posting record profit. And yet year upon year we also get letters "We apologize but due to us being greedy douchebags we're increasing the price of gas by 5p a unit, sucks to be you""

That's because they are public companies and their shareholders don't just expect profit but GROWTH in profit. They are dead meat if they don't grow.

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Re: Why?

"Why do some of the most profitable companies receive any form of subsidy from the taxpayer? This is interfering with the Free Market (TM)."

This is not a subsidy, it is the removal of additional taxes which no-one else pays. Arguably, it makes the energy market more free.

Wind power - now that IS subsidised.

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Holmes

Re: Why?

"Only thing that annoys the hell out of me about these companies, year upon year you have people like british gas posting record profit. And yet year upon year we also get letters "We apologize but due to us being greedy douchebags we're increasing the price of gas by 5p a unit, sucks to be you"

Because the gas price is set globally by how much there is, versus how much people want. Partly that's "pure" market forces, but then you've got:

(1) country-cartels like OPEC (oil and gas have some signifcant linkages),

(2) government planners (eg Russian government controls Gazprom, sets export volumes and influences prices),

(3) geopolitics (eg US sanctions on Iran block exports from one eighth of all known global reserves)

(4) weather (cold winters boost demand)

(5) non-conventional resources (eg could shale gas make a difference)

(6) Nuclear closures in Germany, Italy, Belgium, Switzerland will increase gas demand)

(7) Rapidly rising gas demand in developing countries, often with goverment subsidies

And so forth. Nobody complained when oil was $10 a barrel, that was a benefit everybody took from having a global oil market. Now we have higher prices, that's the global market.

Coming back to your question ga or 'leccy oven. Gas is cheaper to run, but cooking control is generally worse than a electric decent fan oven. The marginal fuel cost of an electric oven over a gas one is about ten quid a year (assuming you use is for about four hours a week). When you have your gas appliances checked each year, the gas fitter ought to charge you an extra fiver for checking the oven, so all in there's little to choose cost wise. Even that apparent five quid saving will disappear because of household energy lost through the enhanced ventilation that a gas cooker needs.

Electricity costs will rise faster than gas in coming years due to government policies already in place, but not enough to make gas ovens materially better in running costs.

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Boffin

Re: Why?

Giving tax breaks to farmers doesn't increase profits at Greggs.

There are two separate parts of the oil & gas industry: on the one side we have exploration & production, and on the other side we have retail. In the UK, BG Group are the main gas production arm. Conversely we have Centrica (owners of the British Gas brand name) who are the main retailers. If Centrica make a profit, that's nothing to do with how much profit BG Group make. This tax break only affects the likes of BG Group, not Centrica.

*(Yes, a long time ago BG Group and Centrica used to be the same company, British Gas, but that was 15 years ago. They are now two completely separate businesses.)

As for switching everything to electric, good Lord no! That'll be twice as expensive. A lot of the UK's electricity is produced by burning gas to generate heat to boil water to drive a steam turbine which turns a dynamo which generates electricity. Burning gas directly in your oven is a lot more efficient and cheaper than converting it to electricity then back into heat.

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Meh

Re: Why? @Buzzword

"This tax break only affects the likes of BG Group, not Centrica."

Not correct. When the old British Gas split into BG and Centrica your comments were correct. But Centrica immediately started investing in "upstream" assets, by which I mean gas fields, and now half of Centrica's business (measured by profits or capex) is the upstream gas business.

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Re: Why?

Cheapest is to buy something like an aga and burn some wood nicked from the nearby woodland or hedgerow

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Re: Why?

Gas cookers are and always have been easier to control. The ovens are always slow to respond but the response of gas hobs is massively better. Still, Aga is the way forward, chuck some wood in it, if its taken from 'the wild' after a storm it is effectively free.

As for the 'its all to do with the market' well thats utter crap, the price 'on the market goes up' and prices go up, the market goes down and prices.... well they will come down when we've used up the reserves of the expensive stuff...

You are right about Merkel - the most stupid announcement ever, not known a tsunami in Germany and a well managed plant is safe (it was the stupidity of not being able to beg borrow or steal a mobile generator that was the real problem that led to the over heating in Japan. Of course her announcement and Thatchers inspired 'dash for gas' both have created demand that can't be satisfied so will push the price up. Perhaps we could reduce demand for oil and gas in the UK by digging some coal out of the ground... we used to make coal gas, we used to make electricity form it, we used to run the railways and industry with it and the Germans even managed to make petrol and aviation fuel from it. Not only all of that but digging a lot of it out of the ground will employ a lot of people, that will reduce the social security bill and mean my taxes go down which means I get cheaper gas, cheaper electricity, cheaper petrol, more wages in my pocket - and we might even end up being able to afford to manufacture again here.. so cheaper better quality goods. Perhaps there is more than a subtle link between the Chinese success and the mountains of coal they dig up.

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Re: Why? @wowfood

Get an electric oven. Get a stovetop with gas hobs.

It's not about running costs, it's about making cooking easier and therefore more enjoyable, which means you'll cook more often and eat better food.

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Boffin

Re: Why? @Dave15

Feel free to stick to your prejudices, but gas prices do come down, often quite fast:

http://www.ofgem.gov.uk/Media/FactSheets/Documents1/Why%20are%20energy%20prices%20rising_factsheet_108.pdf

They are currently high by recent historical standards, but as you'll see they fell continuously from 1986 through to 2000, even at unadjusted prices (meaning the fall was greater in real terms 'cos most people's salaries were going up at 3-4% a year over this time period). Note also the big drops in autumn 2006 and again in autumn 2009. Maybe not back to where you want them, but certainly up and down. If you read beyond the chart on page 1 of the linked document, you'll also find that despite your aggrieved tone, UK gas prices are a lot better than most of Europe's.

As for coal to gas, the various processes for doing that aren't very efficient, which is why the only people using them have no other option (eg WW2 Germany, sanctions era South Africa; "town gas" in the Uk was expensive, inefficiently produced and dirty). You may also recall why we had a dash for gas in the UK? Remember those public spirited fellows the miners? And the three day week? Remember the huge subsidies consumed by the Coal Board? The huge subsidies to CEGB to build coal fired power stations near now redundant pits? The subsidies to British Rail to heave coal all round the East Midlands and South Yorkshire? As for "run the railways with coal", that was true, but the dismal efficiency and low availability of steam locomotives has ensured their demise across the world, as well as being a contributer (along with the botched Modernisation Plan) to the losses that caused the Beeching review.

Deep mined coal is not economically viable using current techniques, unless you regard current techniques as the unsafe Chinese mines that kill hundreds each year. So far from your utopia of lower taxes and full employment, you'd take us back to 1973, and we'd have higher costs for energy, an even more stilted economy, higher unemployment, higher pollution etc. I remember the 1970s, and they weren't great (with the exception of Abba).

The Chinese success is predicated on several things, but coal isn't one of them. Beyond the intrinsically low labour costs of a developing country there's some important extras: First they have a distorted exchange rate that makes their exports 30% cheaper then they ought to be (hence the huge trade imbalances with US & Europe). Second they have few government controls on development, pollution, workers rights, property rights etc - so long as you've paid the bribe tax, you can do what you want without those pesky workers complaining, and without having the clean up your mess. Third, their government has built (and indeed overbuilt) the infrastructure that commerce needs - so you need a port and railways to it? No problem, the government carpet the Pearl River delta with what is now effectively the world largest export terminal. And fourth, they don't have the high state spending of the Western economies on health, welfare, bureaucracy, "climate change" etc, which translates as lower taxes on things like fuel - so for comparison retail petrol prices are half those that we pay.

If you've got this far, let me offer you a few figures. In 1974, the CEGB's newest coal stations generated using British coal for 0.74p per kWh (that's their cheapest source at the time, not even the CEGB average). Update that for RPI year on year, and that's 67p/kWh today. Currently wholesale generation in the UK is around 45p/kWh. Given that the relatively few technology developments in both deep mining and coal combustion in the past fifty years are largely offset by the costs of better safety underground, and better emissions control above ground, your idea would see electricity prices increase by at least 50%. The only reason that the remaining UK coal power stations remain on line is because of huge volumes of cheap imported coal from huge open cast mines in cheap locations (Poland, Indonesia and the like).

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FAIL

Oh dear

How is this going to help, exactly? Oil is profitable as all hell anyway, and the heavy taxes on the end user, and in general ignorance about tax breaks on oil drilling mean any benefit will be absorbed into the pockets of oil executives, and nothing else.

Trickle down, as if someone was pissing in your face.

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Re: Oh dear

It makes fields that were no longer profitable to operate profitably again.

This allows oil to be extracted from those fields.

This increases the amount of oil produced, which increases tax revenue from oil.

This requires more people to be employed to extract that oil, decreasing unemployment and increasing tax revenues.

Having more people in work means that they have more disposable income, which means that more money is spent in the economy, which in turn allows more people to be hired, and again, increases tax revenues.

Not exactly rocket science is it?

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Re: Oh dear

The arguments are not without merit. Still as Thatcher correctly pointed out and as everyone since has followed, it is 'cheaper' to buy police cars from Germany, fire engines from Canada, tax software from America, NHS software from India... the money saved obviously can be used to pay the unemployment to the Brits who should be doing the work... thats clearly why my taxes are SO much less now than they were 20 years ago.

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Alert

Dredging the bottom of the barrel

Oil is the largest single source of primary energy used by humans, about 37% just ahead of coal (which, thanks to China, is catching up rapidly) and gas at about 20%. Nuclear, hydro and renewables make up the scraps. UK oil and gas supply peaked about 12 years ago, and we are once again a net importer of both, and imports are rising rapidly as domestic production is falling at 7% a year, every year, for over a decade.

This is not good for the UK economy. Tens of billions not good. The global supply of oil has peaked, and consumption is now a global zero sum game, with China et al increasing consumption and OECD nations being priced out of the market - 10% fall in consumption in the last 4 years. The real price of oil has gone up 5 fold in a decade - because the easy to develop oil has mostly been found and drilled, and because theremaining oil exporting countries are now so rich they are burning more of their own oil and selling less on the global market. Either way we are consuming less oil in the UK and will continue to consume less oil, year on year, for ever. We are broke as a nation and we are going to have to adapt to living on a lot less energy.

Spending a few millions on drilling the dregs of the North Sea is not going to change much.

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Re: Dredging the bottom of the barrel

Or alternately, replace every coal and gas plan in the UK with nuclear for the national grid, and use the Fischer-Tropsch process to convert coal and gas to petrol for cars.

Energy problem solved for decades in the worst case, and we might even hit the CO2 targets we signed up for. What's not to like?

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Re: Dredging the bottom of the barrel

Whats not to like ? We import more gas than we import oil already as it is. Our coal reserves are 95% depleted - we peaked production in 1914 - 98 years ago, we import most of our current consumption and prices on the global market are rising for both as China , japan etc. increase imports at exponential rates. The FT process is hideously inefficient and polluting in terms of CO2 emissions and would generate petrol at twice the price we pay today.

It will take a minimum of at least a decade to build new nuclear, and I don't see plans for more than about 6 reactors - not enough to even replace the current generating capacity due to be retired. The only nuclear station being built in Europe is already 5 years late and hideously over budget. This is normal for nuclear industry. We are facing an energy cliff today. Consumption is already falling as we a priced out of the industrial age, this process is accelerating.

We are building wind turbines. Once they are built, the energy is almost free. We can't sustain our current lifestyles, but the difference between 0 and 1 KWh/day is far larger than the difference between 1 and 10 KWh/day.

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Re: Dredging the bottom of the barrel

Nuclear is good but we need to use coal far more. It can be used directly in electricity generation, can be turned into gas (as it used to be - we all burnt coal gas before the natural gas from the north sea) and even petrol (the Germans main source of petrol and aviation fuel in WW2 was coal). Coal also has the advantage of employing a lot of people.

One more thought - what is wrong with natural gas - I mean not the stuff from the north sea but the stuff coming off the sewers of this country - vast quantities of methane from this (and rubbish tips) which could be burnt for electricity, this sounds non=environmental BUT the methane is worse than the CO2 that would replace it in terms of any greenhouse style effects.

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FAIL

Re: Dredging the bottom of the barrel

" I mean not the stuff from the north sea but the stuff coming off the sewers of this country"

Dave 15: Like Johnny English, "He knows no fear; He knows no danger; He knows nothing"

Residence time of sewage in the sewerage system is a few hours at most, so there's no material decomposition takes place unless you've got a blocked sewer. And when it gets to the sewage works settled sludges are treated in digestion facilities to reduce the volume and kill pathogens, and the cleaned methane is commonly used in power generation. I was working on REPLACING life expired sewage gas systems twenty years ago, and worked on similar schemes to install gas capture networks and generation on landfill sites, so you're a bit late to the party on this one. I seem to recall that the Victorians installed the first sewage methane capture systems in London, so maybe a hundred years late.

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Thumb Down

Re: Dredging the bottom of the barrel

"Or alternately, replace every coal and gas plan in the UK with nuclear for the national grid"

Go on then, you've convinced me. Nuclear is currently looking like £5bn per MW (before construction has even started). UK generating gross capacity is around 83 MW, so that's £415bn to go completely nuke. If you put in a very modest contingency then we're talking about half a trillion quid, almost as much as government raises in tax from the entire land in a year. And you want to spend that half a trillion on a sector that is 2% of the whole economy?

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Re: Dredging the bottom of the barrel

>Nuclear is currently looking like £5bn per MW

I'm trying to figure out how on earth you came up with such a figure. The only way I can see is if you take the construction costs for a typical nuclear plant at around 1200MW capacity, take around one twelth hundreth of it's design output and then mess around with it from there.

You can't compare a single wind turbine to a fraction of a nuclear plant. You have to compare a wind farm of equivilant output to a nuclear plant. I'm assuming that kind of comparison is where you got the figures from.

>UK generating gross capacity is around 83 MW

Good news then! If we are only using 83MW nationally, any of our nuclear reactors is outputting several times more energy than the country needs in total since you usually have two reactors of 600MW making a single 1.2GW plant.

Your argument consists of lies, damn lies and statistics.

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Another option

Why don't we just exempt anyone or any company worth more than a million pounds from paying any tax at all? Seems to be the way it is going.

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Re: Another option

Could do that. But Centrica actually paid the better part of of a billion quid in tax last year. Do write to your MP is you'd rather that was added to your income tax.

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