Centrica threat to close gas field over 'tax raid'

Published on Friday 29 April 2011 19:17

SCOTTISH Gas-owner Centrica has refused to rule out permanently closing down the UK's biggest gas field because of the Chancellor's controversial tax raid on North Sea energy firms.

The action by the energy giant at Morecambe Bay in the Irish Sea west of Lancashire, will be seen as the sharpest sabre-rattling yet by an energy industry disenchanted with the tax crackdown that it feels will threaten investment and jobs.

A Centrica spokesman confirmed the company had stopped production yesterday at Morecambe Bay, a reservoir 25 miles west of Blackpool that provides an estimated 6 per cent of the UK's gas, for maintenance work.

He said that the company may not reopen the field following George Osborne's 12 per cent increase on North Sea profits.

The spokesman said: "Centrica is committed to procuring the cheapest available gas for our customers.

"Following the increase in supplementary corporation tax in the Budget, UK oil and gas fields are now subject to some of the highest levels of tax in the world - our South Morecambe field is now taxed at 81 per cent.

"At these higher tax rates, Morecambe's profitability can be marginal.

"Accordingly, we may choose to buy gas for our customers in the wholesale markets in preference to restarting the field after planned maintenance."

The maintenance is expected to take about a month. Morecambe Bay is a declining basin, traditionally managed by Centrica to ensure longevity of the gas reserves.

One insider said: "This ensures the UK has gas when it needs it, for example during the winter months when imported gas is very expensive and UK gas demands are very high."

However, following the Budget, the North Morecambe field is subject to a 62 per cent tax rate and South Morecambe 81 per cent.

The Centrica bombshell comes as oil and gas industry leaders are set this week to make a final attempt to thwart Osborne's tax raid.

Representatives giving evidence to the UK energy and climate change committee on Wednesday will restate concerns about the impact of the tax raid on investment and jobs.

They will also push for measures to mitigate the rise in the supplementary charge from 20 to 32 per cent, even though the Chancellor recently dismissed claims that offshore investment would be hit.

Shell, unveiling a strong jump in first-quarter profits last week, also warned that it might sell some assets in the North Sea and cut investment on some smaller projects in the region because of Osborne's moves.Simon Henry, Shell's chief financial officer, revealed that changes, including reduced tax breaks for oil and gas companies decommissioning rigs, could cost the group a total of $1 billion (600m) in extra charges over 2011 and 2012.

Trade body Oil & Gas UK aims to point to Centrica and Shell's concerns on the issue as evidence of mounting industry concern at this week's meeting.

Others scheduled to give evidence include the Oil and Gas Independents' Association, Energy Secretary Chris Huhne and Justine Greening, economic secretary to the Treasury.