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Offshore Industry: Decommissioning

Question for HM Treasury

UIN 63179, tabled on 6 February 2017

To ask Mr Chancellor of the Exchequer, what estimate he has made of the cost of decommissioning North Sea oil infrastructure; for what proportion of those costs the taxpayer will be liable; and what steps he plans to take to reduce those costs.

Answered on

13 February 2017

The Government believes in making the most of the UK’s oil and gas resources. The oil and gas industry has contributed around £330bn to the Exchequer to date, supports hundreds of thousands of jobs and supplies a large proportion of the UK’s primary energy needs.

Decommissioning is an inherent cost of doing business in the UK Continental Shelf, as companies are required by law to decommission oil and gas infrastructure after production ceases. Estimates of the total cost of decommissioning vary, due to the complexity of work and long timeframes involved. HM Revenue and Customs’ Annual Report and Accounts 2014-15 estimates that, out of a total of £41bn decommissioning costs between 2015 and 2041, the Exchequer’s share is £16bn. This is due to repayments through decommissioning tax relief, which are only made if tax has been paid in the first place.

The Government is committed to ensuring decommissioning programmes represent value for money, as this delivers benefits both to industry and the Exchequer. The Maximising Economic Recovery UK Strategy places an obligation on oil and gas licensees to decommission assets in the most cost-effective way, ensuring all viable options for the continued use of that infrastructure have been considered. The Government has given the Oil and Gas Authority (OGA) a new remit to work with industry on cost reduction and delivery capability for decommissioning. The OGA also has a duty to advise the Secretary of State for the Department of Business, Energy and Industrial Strategy on the cost effectiveness of decommissioning programmes.

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