Far out within the North Sea a abandoned however large oil platform awaits its destiny. Brent Charlie is the final the rest of the Brent discipline – a useful resource so large it as soon as supplied a 3rd of the UK’s each day oil wants.
Found within the Seventies, the Brent discipline at one level produced 184 million barrels of oil a yr, incomes billions for Shell, its proprietor, plus £20bn in tax revenues for the Exchequer. It was so large it wanted 4 large platforms to extract its riches – Brent Charlie, Alpha, Bravo and Delta.
At the moment Alpha, Bravo and Delta have gone, lower from their helps and brought to the scrapyards.
Later this yr Brent Charlie may also have its legs lower from beneath it and be lifted on to Pioneering Spirit – an enormous ship specifically designed to tear aside decaying oil and fuel installations.
Pioneering Spirit and the rising fleet of comparable oil rig-slaughtering vessels are set for some busy years. Within the waters across the UK, tons of extra oil and fuel installations are falling silent. Fifty years after the North Sea bonanza started, the ultimate decline is upon us.
In addition to hauling the retired rigs to shore, practically 8,000 wells that had been drilled deep into the seabed should even be plugged.
The decline of the North Sea has implications not only for vitality coverage and tax earnings, however public funds extra broadly.
We face an enormous invoice – probably as much as £60bn – to clean up the North Sea.
The vitality firms are chargeable for decommissioning, however tax breaks imply a lot of that cash might be reclaimed from the Exchequer – and in the end taxpayers.
Final yr alone greater than 200 oil and fuel wells had been plugged, eight platforms had been eliminated and eight,000 tonnes of subsea buildings had been taken out of the ocean – with one other 250km of seabed pipelines being decommissioned. One other 180 of the UK’s 284 oil and fuel fields will shut down by the tip of the last decade.
Mass closures will not be the results of eco-protests, nor due to a scarcity of demand.
Provide isn’t dwindling both. Over the past 5 a long time oil and fuel equal to 47 billion barrels of oil have been extracted, however seismic surveys recommend one other 25 billion stay.
As a substitute, operators blame punitive taxes for the speedy pullback, with some facing levies of more than 100pc on their profits.
Manufacturing is now in speedy decline.
Information from the North Sea Transition Authority (NSTA), the federal government’s regulator, reveals UK oil manufacturing peaked at 150 million tonnes of oil a yr in 2000 – roughly double the nation’s consumption. We additionally produced about 108 billion cubic metres of fuel – about 20 billion greater than we consumed.
Exports, jobs and taxes had been all booming. The oil and fuel trade was using 500,000 individuals straight or in its provide chains and its merchandise had been the important fuels powering not simply our properties and autos however the entire UK financial system.
Over the 5 a long time to 2020 the offshore trade poured round £400bn of taxes into the Treasury’s coffers.
The distinction with now might hardly be higher. Final yr the UK produced simply 38 million tonnes of oil, down by 74pc from its peak and about 20 million tonnes lower than we want. Gasoline manufacturing was 30 billion cubic metres – lower than half our wants.
Employment has fallen to 130,000. So too has the tax take, to round £3bn.
In the meantime, the UK’s reliance on oil and fuel has hardly modified. We nonetheless get 75pc of our whole vitality from oil and fuel – identical to twenty years in the past.
Fossil fuels could also be warming the local weather however they’re additionally important to heating the 27 million properties reliant on fuel or oil-powered boilers. Round 30 million autos nonetheless run on diesel or petrol and gas-fired energy stations present over a 3rd of our electrical energy.
We nonetheless eat 77 billion cubic metres of fuel a yr or 1,100 cubic metres per particular person, the quantity of 14 double-decker buses. We additionally eat about 60 million tonnes of oil – practically a tonne per particular person. Think about a number of wheelie bins of oil for every citizen, together with kids.
Regardless of the inexperienced foyer claims and no matter politicians promise, the very fact is that the UK stays a fossil-fuelled nation.
Will that change? Fossil gasoline consumption has declined slightly and will fall sooner if the Authorities can persuade us to install heat pumps, purchase electrical automobiles and alter our lives in all the opposite methods required by web zero.
However what’s turning into all too clear is that our consumption of fossil fuels won’t ever fall as quick because the decline in our North Sea provides.
It signifies that for a minimum of the subsequent few a long time the UK might be more and more reliant on imports – with all of the vulnerability to international markets, value shocks and the whims of dictators reminiscent of Putin that this suggests.
Twenty years in the past we had been producing sufficient oil and fuel for the nation and exporting some. Now we face vitality poverty and reliance on different nations to maintain our properties heat, our lights on and our autos transferring.
How did it come to this?
Black gold
“Pricey God, give us one other oil increase. Subsequent time we received’t p*** it up in opposition to the wall”.
The phrases of an nameless graffiti artist scrawled on a wall some years in the past in Aberdeen nonetheless resonate immediately.
The town’s roots because the UK’s oil and fuel capital might be traced again to the mid-Sixties when BP found the West Sole fuel discipline, the primary affirmation that extra fossil gasoline riches had been ready to be discovered within the North Sea.
Different firms quickly got here trying, with Philips Petroleum discovering Norway’s mighty Ekofisk discipline in 1969, adopted by the UK’s colossal Brent discipline in 1971 and the Piper discipline in 1973.
These big oilfields and others like them provided the potential to remodel the UK’s financial panorama.
Tony Benn welcomed the primary supply from the Argyll discipline. A well-known image reveals the then-Labour vitality secretary opening a valve to launch the primary consignment of oil into the BP refinery on the Isle of Grain in Kent.
Tax receipts additionally began flowing in, hitting a document excessive of £12bn within the mid-Nineteen Eighties.
At its peak, roughly one in each £12 that the UK Authorities took in tax revenues got here from the sector.
At the moment, that determine is lower than £1 in each £100.
The oil increase sparked large shifts in Britain’s financial system because the pound soared in worth, rendering large swathes of British trade uncompetitive and destroying 1000’s of jobs.
It additionally helped to bankroll Thatcher’s tax-cutting drive within the late Nineteen Eighties, cementing her legacy as an enormous reformer.
Politicians knew on the time they’d a money cow, and successive chancellors have been milking it ever since.
First got here the petroleum income tax (PRT), launched alongside the invention of oil and fuel. A brand new 20pc tax on North Sea oil was launched in 1981 by Tory chancellor Geoffrey Howe.
Labour’s Gordon Brown launched a 10pc “supplementary cost” on North Sea earnings in 2002, successfully elevating tax on the area’s manufacturing to 40pc from 30pc. He launched a second raid on earnings in 2005 by doubling the supplementary cost in what the SNP branded a £2bn “smash and seize”.
George Osborne tinkered with North Sea taxes additional, launching a £2bn raid in 2011 to pay for a one penny lower in gasoline responsibility as oil costs soared above $100 a barrel.
Jeremy Hunt’s windfall levy within the wake of Russia’s invasion of Ukraine helped to plug a gap within the public funds.
Nations reminiscent of Norway have taken a really totally different strategy to managing their oil and fuel wealth.
In 1990, when the UK was utilizing its North Sea earnings to fund battles in opposition to the unions and prop up day-to-day funds, Norway arrange an enormous financial savings account – now often called a sovereign wealth fund.
That fund immediately controls belongings value £1.5 trillion, together with a stake in 113 buildings on London’s Regent Avenue starting from Apple’s flagship retailer to Hamleys toy store.
Norway’s sovereign wealth fund immediately holds the equal of about £250,000 for every citizen – sufficient to make the nation snug for a lot of a long time to return, together with lengthy after the oil and fuel runs out.
There have been individuals advocating for the same UK North Sea wealth fund on the time of the trade’s beginnings. Labour’s Tony Benn was one among them, as was Bruce Millan, the previous Scottish secretary of state. However they had been overruled by the remainder of the cupboard, who had been turning into cautious of the rising requires Scottish independence.
Denis Healey, the previous Labour chancellor, admitted in one among his last interviews that the federal government did “underplay the worth of the oil to the nation due to the specter of nationalism”.
Sukhdev Johal, accountancy professor at Queen Mary College, London, estimates that if the UK had arrange an analogous fund to the Norwegian it might be value £850bn. Given the UK’s a lot bigger inhabitants, that may work out to £13,000 per particular person – a smaller haul, however nonetheless vital.
In the end, the North Sea earnings helped help tax cuts for the better-off when the Tories ousted Labour. Nigel Lawson, chancellor beneath Margaret Thatcher, had lower the highest price of tax from 60p to 40p by 1988.
Healey advised Holyrood journal: “Thatcher wouldn’t have been in a position to perform any of her insurance policies with out that further 5pc on GDP from oil. Unbelievable good luck she had from that.”
At the moment the North Sea isn’t the money cow that it was and the cash is swiftly operating out.
Operators’ revenues had been £10bn in 2022-23, the Workplace for Finances Duty (OBR) estimates, however that is projected to fall to £4bn this monetary yr and simply £2bn by 2028-29.
Manufacturing prices are additionally mounting. A long time of extraction imply all of the simply accessible oil has already been drilled out.
The UK’s mature fields at the moment are some of the costly locations on this planet to extract oil from. It prices $26.20 to provide a barrel of the stuff immediately, in contrast with $5.50 in Saudi Arabia and $7.30 in Norway, in response to Rystad Vitality.
Scrapheap problem
The large problem immediately is decommissioning.
Six years in the past the NSTA estimated that the price of coping with all of the rusting stays of the UK’s North Sea ventures was £60bn. Its scrapheap problem contains 320 mounted installations, 250 “subsea programs” – that means wellheads and different equipment on the seafloor – plus 20,000 miles of pipelines snaking between wells, platforms and the shore.
However the costliest problem is coping with the 7,800 wells, which regularly stretch over a mile into the bedrock. Every must have sections of its metal casings stripped out and plugged with cement, a course of prone to eat half all the decommissioning funds.
“Every unplugged nicely is a risk to the longer term, probably leaking pollutant oils or methane, a potent greenhouse fuel, into the ocean above for many years or centuries,” says one of many trade’s most skilled engineers.
For the Treasury, nonetheless, the issue is just not future air pollution however value.
The UK treats decommissioning as a enterprise expense, that means it may be offset in opposition to earnings made in earlier years to decrease tax payments. Shell’s Brent clean-up alone has value the Treasury £600m in tax rebates since 2018.
Simply how a lot the tip of the North Sea will in the end value taxpayers is a bone of rivalry.
The Nationwide Audit Workplace (NAO) estimated the Treasury confronted a £24bn invoice for such rebates in a 2019 report.
“Taxpayers are in the end chargeable for the whole value of decommissioning belongings that operators can’t decommission,” the NAO stated.
The warning prompted the Treasury to place strain on the NSTA to chop the price of decommissioning. Its newest predictions present an astonishing discount within the whole value from £60bn to £40bn, which mixed with will increase in oil costs and earnings has decreased the Treasury’s predicted legal responsibility to £4.5bn.
Some critics suspect a politically impressed accountancy train, however the NSTA says the financial savings are real. It insists that knowledge-sharing and “extra refined” forecasting have helped, including: “Setting value discount targets sharpened trade’s give attention to the necessity to enhance.”
Business insiders beg to vary, questioning how any sector might slash prices by a 3rd in an period of rampant inflation.
Gilad Myerson, government director of Ithaca Vitality, one of many UK’s largest offshore operators, stated the NSTA’s estimates took too little account of the impression of the UK windfall tax, which has restricted funding and “will carry ahead the timing of decommissioning programmes while decreasing manufacturing from current UK fields”.
Myerson says: “These modifications to fiscal insurance policies had been designed to spice up taxes, however in actuality will value the financial system extra as fields shut early, decreasing tax funds and driving up decommissioning prices.”
Greater than 250 decommissioning plans have been lodged to date. Every units out intimately what might be eliminated but in addition what might be left in place, together with pipelines, concrete mattresses (used to guard pipelines) and different redundant metalwork or concrete.
In principle all such dumping is banned beneath the Ospar Conference on maritime air pollution, an settlement between the UK and 14 different European governments, plus the EU, aimed toward defending the north-east Atlantic.
In apply, nonetheless, a relaxed strategy from the regulator means the UK’s seabeds won’t ever be put again to their pure state – a saving that may profit firms and the Treasury, however infuriate environmentalists.
Extra value financial savings could come from derogations, the place Ospar signatories allow firms to depart large installations within the sea ceaselessly regardless of official guidelines.
The UK has authorised 10 such derogations and Ospar warns many extra are doubtless: “There are at present 59 metal installations weighing greater than 10,000 tonnes and 22 gravity-based concrete installations, for which [more] derogations from the dumping ban could but be thought-about.”
Shell particularly desires derogations for the 165-metre tall legs that after supported three of its Brent platforms, claiming leaving them in place is the cleanest and most secure possibility.
These “gravity-based buildings” had been constructed from concrete bolstered with metal bars at a time when the principle thought was how one can survive the 200mph winds and 80-foot waves discovered within the Atlantic seas north east of Shetland.
No-one considered their eventual elimination. The ensuing buildings every weigh 300,000 tonnes, the identical as New York’s Empire State Constructing.
In addition they served as oil storage tanks and so include 1000’s of tonnes of poisonous oily sludge.
Shell believes leaving them in place was the most suitable choice: “Our suggestions are the results of 10 years of analysis, involving greater than 300 scientific and technical research.”
Others disagree. Tessa Khan, government director of Uplift, an NGO that campaigns to close down UK fossil gasoline manufacturing, stated: “Oil and fuel firms which have profited from the basin for many years, and that are sitting on large windfall earnings immediately, ought to clearly be made to wash up after themselves, like another enterprise.
“It’s much more scandalous that the Authorities has caved to trade lobbying such that taxpayers now decide up a bit of the clean-up invoice.”
Vitality insecurity
What does the longer term maintain? For offshore contractors, pulling aside oil and fuel installations is turning into probably the most dependable supply of earnings.
Spending on decommissions has risen from £1.39bn in 2019 to £2bn this yr and there might be way more spent in future particularly if, as anticipated, the NSTA’s £40bn predicted whole proves too optimistic.
Elevated spending on decommissioning comes as funding in exploration for brand spanking new oil and fuel fields tumbles – from £800m in 2019 to only £330m this yr.
Solely a handful of recent wells have gone into manufacturing within the final 5 years in contrast with the numerous tons of which have shut down.
Some imagine there may be nonetheless cash to be made within the North Sea. The NSTA has authorised 51 new exploration licences within the final yr with as much as 60 extra pending. Vitality secretary Claire Coutinho has argued for extra, saying the home oil and fuel trade is significant to the UK’s vitality safety and financial system.
Nevertheless, vitality firms will not be impressed by such blandishments. Few are investing and a few are strolling away – for causes that don’t have anything to do with geology and all the things to do with politics.
The present authorities’s windfall tax has raised the levy on oil and fuel manufacturing earnings from 40pc to 75pc. The vagaries of the tax system imply some operators have in actual fact confronted tax charges in extra of 100pc.
Harbour Vitality, the UK’s largest oil and fuel producer, blamed the tax burden for halting its funding within the UK.
The doubtless subsequent authorities has solely added to the uncertainty. Labour has pledged to halt all new licensing, add one other 3pc to the windfall tax and probably even backdate it.
The impacts of these coverage swings from the UK’s two principal political events are proving disastrous for each the trade and the nation, argues Chris Wheaton, an analyst with Stifel who specialises within the offshore trade.
In a current notice, he estimated that the UK Authorities would lose out on £20bn of tax earnings if funding is “successfully being shut down by larger taxes or stopping any future developments”.
Vitality safety would additionally endure, he argues. “UK fuel manufacturing would see an accelerated decline, forcing extra fuel to be imported… with impacts on vitality prices for customers. We estimate the UK can be importing 80pc of its fuel demand as early as 2030.”
Mike Tholen, coverage director at Offshore Energies UK, the oil, fuel and wind industries commerce physique, stated shutting down UK oil and fuel with out first constructing the low-carbon programs to interchange them, would depart the UK uncovered to international value spikes and the whims of dictators.
“Over 23 million properties depend on fuel boilers for warmth and sizzling water and fuel offers 40pc to 60pc of our electrical energy relying on wind energy,” he says.
“We are able to select an vitality transition the place [oil and gas] infrastructure continues to supply alternatives for UK firms and employees. Or we are able to select growing reliance on vitality from different nations.”
These arguments look like falling on deaf ears in Westminster, with no significant proposals to scale back the tax burden. As a substitute, decommissioning is the brand new title of the sport.
This yr’s basic election will roughly coincide with Brent Charlie being lower away and melted down for scrap.
