UK oil and gas investment is rising: What does that say about the governments commitment to decarbonisation?
New tax breaks for domestic oil and gas exploitation have triggered the highest rate of investment in UK projects for 30 years, according to an industry association, which has produced a map of new investments. But does this news confirm fears expressed at a conference yesterday that the UK government isn’t serious about decarbonising the economy?
Oil and Gas UK, a trade body representing the offshore industry, says investment in UK oil and gas projects rose to £11.4 billion in 2012 and are expected to grow to £13 billion this year. But the total investment could grow much more: the body says “investments totalling almost £100 billion are now in companies’ plans”.
Malcolm Webb, Oil & Gas UK’s chief executive, says in a press release:
“[T]he UK continental shelf is now benefitting from record investment in new developments and in existing assets and infrastructure, the strongest for more than three decades.”
Webb says tax allowances, which the Chancellor, George Osborne, introduced last year, have encouraged the development of “difficult projects”, making them commercially viable. It blames investor uncertainty in the mid-2000s for a slowdown in production.
Now, the Department of Energy and Climate Change (DECC) has approved 33 new projects since January 2012. Oil and Gas UK expects 130 new exploration wells testing potential new sites to be drilled over the next three years, too. It says this should result in “many more barrels being discovered”.
The release says investor decisions take three to four years to affect the level of production, so it could still take a while for increased investment to boost the UK’s domestic oil and gas output. But eventually, Oil and Gas UK says it expects the investments in 2011 and 2012 to translate into more than two billion extra barrels of oil and gas and an additional value of £100 billion for the economy.
Image - Screen Shot 2013-02-26 At 10.42.14 (note)
Questions over decarbonisation commitment
While the tax breaks appear to have given oil and gas investors the certainty they need to put money into the UK’s fossil fuel industry, the low-carbon sector appears to be encountering increasing difficulties.
A new report from manufacturers’ association EEF last week warned growth in low carbon goods and services – which it says are potentially worth £880 million to the economy through to 2050 – is “faltering” in the absence of a coherent industrial strategy. And industry groups claim a wave of new housing is on hold while the government decides whether or not to introduce stringent new energy efficiency rules.
Critics say the government is contributing to investor uncertainty in areas such as renewable generation and is averse to publicising areas where ‘green’ sectors of the economy are growing.
Speakers at a Chatham House conference on green growth yesterday voiced concerns that the government is less likely to publicise successes in ‘green’ sectors of the economy. For example, a report last year that showed the green goods and services sector grew 4.7 per cent in 2011 was posted on a government website with no press release, they said.
One panellist said: “The story of green growth is not being told [by the government]”, pointing out that the Prime Minister’s office did not invite any environmental journalists to a speech last month in defence of UK green growth.
Another speaker said the government’s failure to publicise low carbon successes speaks to a “real fight” within the treasury over the UK’s growth path, which is confusing the market signals investors in low carbon goods and services need.
Many column inches have been devoted to the government’s enthusiasm or otherwise for growing a low-carbon economy. Meanwhile, somewhat out of the media spotlight, it appears last year’s tax breaks may be spurring a small resurgence in UK oil and gas production. This might raise questions about how the UK’s long term – and legally-binding – plan for decarbonising the economy is faring.