Centrica Shuts UK’s Largest Gas Field
One of Britain’s largest gas fields, run by Centrica, is to remain closed as a result of the new tax on North Sea oil and gas profits.
Utility Exchange reported last month that Centrica, owner of British Gas, had shut the South Morecombe gas field for maintenance. At the time the company warned that it may consider shutting the gas field permanently because of the increased taxes imposed by the Chancellor in the March budget.
Now Centrica has confirmed that the South Morecombe gas fields will stay closed because the higher tax rate has made it uncommercial. It’s one of the largest gas fields in the country and produces around 6% of the country’s annual gas requirements. So its closure is quite significant.
Many companies have complained about the Chancellor’s tax on production profits. They argue that it punishes gas fields because gas prices are much lower than oil prices at the moment. Gas producers have warned that the new tax system will bring about a speedy decline of the North Sea oil and gas industry because it’s the more mature fields which will suffer the most as their profits will be taxed at 81%.
Centrica has said that the new tax now means it’s cheaper for them to buy gas on the wholesale markets than to produce it at home. However, this could mean increased business gas prices and even business electricity prices because more countries are turning away from other sources of energy such as nuclear and choosing gas. It means there’s more demand for wholesale gas.
According to Centrica, the increased tax rate “impacts the trigger levels at which point we shut in production and purchase gas from other sources such as liquefied natural gas (LNG)”.
A Centrica spokesman said “Decisions on when to run the field are made on a commercial basis, taking into account market factors, operating costs and earnings. We welcome the ongoing dialogue the Government is having with industry around the damaging impact the increased tax levels have on North Sea gas security and investment. However, the increase in supplementary corporation tax means the South field is now taxed at 81 per cent. At this level of tax, profitability of Morecambe South field can be marginal”.
Last month Utility Exchange reported that BG Group had said that profits had fallen by nearly £600m, blaming higher taxes along with global unrest. According to BG Group the new taxes mean they now have to pay 45% rather than 42%.