The head of the North Sea’s main trade organisation will today warn an influential group of MPs that investment in Britain’s oil and gas fields could be cut in half in less than two years unless urgent action is taken by the government to counter the impact of the global credit crunch. Malcolm Webb, the chief executive of Oil & Gas UK, claimed last month that at least 50,000 jobs in Britain’s wider oil and gas industry could be at risk as oil companies struggle to access the funding to develop new and existing fields.
Today, giving evidence to Westminster’s energy and climate change committee in Aberdeen, Webb will warn that the competitiveness of the North Sea is already under threat as sources of credit dry up. Half measures to help the industry weather the economic storm will not be enough to avert a dramatic fall in exploration and investment.
Webb is one of a number of leading oil industry figures who have been called to give evidence to the committee as part of its inquiry into the future of Britain’s offshore oil and gas industry. Speaking ahead of the evidence session, Webb said: “The industry is of strategic economic importance, satisfying 70 per cent of our primary energy demand, saving on imports worth GBP 40 billion a year, supporting almost half a million jobs and contributing over a third of the UK’s corporation tax.
“Importantly, up to 25 billion barrels of oil and gas still remain to be extracted, which have the potential to meet 65 per cent of our oil and a quarter of our gas demand in 2020.” But he warned: “To attract the capital to develop these reserves, UK oil and gas projects must remain competitive. It is therefore very concerning that since 2004, costs have doubled and the rate of tax charged on new developments has risen to 50 per cent.
“With sources of credit drying up, the amount of capital available has drastically reduced and the falling competitiveness of UK projects means investment could halve in two years.
“Falling activity levels in the short term is not restricted to new developments. Worryingly, exploration for and appraisal of new reserves, the ‘lifeblood’ of the industry, could fall in 2009 to a third of that last year.”
Webb declared: “The UK oil and gas industry is not asking for a ‘bailout’ or handout. We have purposely constructed our proposals so there will be no cost to the taxpayer. However, the government does need to send out a clear and unambiguous message that the UK is a competitive place for investment. “Half measures simply will not be enough if we are to avert a dramatic fall in exploration and a halving of investment over the next two years.”
A call for action will also be delivered by leaders of the Scottish Council for Development and Industry, which warns that falling investment threatens the UK’s energy security and the increasingly important economic, employment and taxation benefits of the industry.