Tax breaks to unlock £12bn of oil and gas off Shetland

CHANCELLOR Alistair Darling yesterday announced a multi-million-pound package of government tax incentives to unlock the massive oil and gas reserves in the Atlantic frontier west of Shetland, worth a potential £12 billion.

It is estimated that the area contains around 20 per cent of the UK's remaining unexploited oil and gas reserves.

Under the new incentive scheme, announced in the House of Commons, oil companies could receive up to 160 million of tax relief for each gasfield in the west of Shetland region that qualifies for the support.

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Mr Darling told MPs: "The area to the west of the Shetland Islands is the last major area in the UK Continental Shelf to be developed and infrastructure is critical to fully unlocking the gas potential of the region. It is estimated that the area contains about 20 per cent of the UK's remaining oil and gas reserves.

"The legislation, if approved by the House, will extend the field allowance, announced in Budget 2009, to remote deep-water gasfields, which are found in the west of Shetland area."

He continued: "The government recognises the importance of the UK oil and gas industry to our economy and the dependable foundation it provides for the UK's energy security.

"While we are trying to reduce our dependence on fossil fuels, we must and do recognise that this will be a long transition and our oil and gas reserves will continue to play a vital role in supplying our energy needs for many years to come."

A Treasury spokesman explained: "Today's announcement provides vital support for the development of remote gasfields located in deep water and will enable the development of strategic gas infrastructure in the region.

"Approval of the legislation will be sought no later than the end of March."

He added: "One project that could stand to benefit from the allowance is the project to develop the Laggan and Tormore fields. The project partners will consider the sanction of the project in spring 2010.

"If the project is sanctioned and proceeds on schedule, the first production of gas from Laggan and Tormore is expected by 2014."

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Malcolm Webb, chief executive of Oil & Gas UK, the pan-industry trade body, welcomed the announcement.

He said: "While we still have to study the details, we are delighted that the government has responded to our calls for the allowance to be extended to the West of Shetland area. This could result in early investment of over 2bn and another 12bn over the next eight years, ultimately bringing almost two billion barrels of oil and gas into production."

He added: "The establishment of this gas delivery infrastructure will stimulate exploration as it will enhance the viability of future discoveries in this frontier area. This can only lead to greater recovery of the UK's oil and gas resources."