Decommissiong UK offshore oil and gas rigs to cost taxpayer £24bn

Decommissioning the UK’s offshore oil and gas infrastructure will cost taxpayers an estimated £24 billion over the next 45 years, according to a new report from the UK’s National Audit Office.

Rigs stacked in the Cromarty Firth  the government is facing huge decommissioning costs

However, the government spending watchdog has warned that putting an exact price tag on the work is not possible.

There are currently around 320 fixed installations such as oil platforms in the UK, primarily in the North Sea.

More than 44 billion barrels of oil and gas have been recovered since the industry took off in the early 1970s, but reserves are now running out and tax revenues from production have fallen dramatically over the past decade.

Now rigs, wells and pipelines are being taken out of service as they come to the end of their operational lifespan. UK operators have been spending in excess of £1bn on the work each year since 2014, with Westminster allowing firms to recover some of the expenditure through tax relief.

The Oil & Gas Authority, a new regulator set up to work with the industry to cut costs, has estimated that decommissioning will leave UK operators with a bill of between £45bn and £77bn.

Associated tax reliefs will cost the taxpayer around £24bn over the next 45 years.

But the report warns that the total cost to taxpayers could be higher than estimated because the government is ultimately liable for decommissioning if operators lack the financial resources to complete the work.

The Department for Business, Energy and Industrial Strategy has acted to reduce this risk by requiring nine operators to set aside a total of £844 million to pay for decommissioning in the future.

UK tax income from oil and gas has dropped significantly since the boom days of the North Sea.

The sector has generated a total of £334bn of net tax revenues for the government since 1970-71. At its peak, in the mid 1980s, contributions totalled £30bn and accounted for 11 per cent of government receipts.

But this has dropped as a result of lower oil and gas prices and operators incurring high levels of expenditure that is tax-deductible.

Two years ago more was paid out than was received in revenues, resulting in repayments of £290m.

However, projections suggest this will recover slightly in the next couple of years, rising from £1.2bn in 2017-18 to £2.4bn in 2022-23.