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Crude Economics
Big Trouble for Britain’s North Sea Oil

The global crash in oil prices is separating the winners from the pretenders in specific oil plays, and much to British dismay, it’s looking like North Sea offshore drilling operations fall squarely in the latter category. The FT reports:

[I]ndustry observers say the impact of the price slump is exacerbated by the growing difficulty of finding and extracting oil and gas from the mature North Sea basin and by tax rates that were raised by George Osborne, the chancellor, in 2011.

Not surprisingly, the industry is hard at work lobbying for tax breaks to ease its pain during these trying times:

[Chancellor George Osborne] announced last month that he would cut the supplementary charge on profits levied on top of UK corporation tax from 32 per cent to 30 per cent but Oil & Gas UK, the trade body, has urged him to abolish it entirely.

The UK’s North Sea oil reserves were already on a steady decline even before the global plunge in prices threatened to make the remaining operations uneconomical. Tax breaks may be a boon in the short term, but the outlook is still grim.

But while one domestic fossil fuel resource matures and begins to peter off, another remains untapped. The UK has plenty of natural gas in its onshore shale formations, gas that only recently became recoverable thanks to technological advances like hydraulic fracturing and horizontal well drilling. So far, local protests have thwarted most attempts to tap these reserves, but with North Sea rigs feeling pressure from all sides, it will be interesting to see whether public opinion starts to shift in favor of fracking that shale. The British need only look across the Atlantic to see the extraordinary potential lying in wait under their feet.

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  • S.C. Schwarz

    “whether public opinion starts to shift in favor of fracking that shale”

    Sadly it will never happen. The Greens control the media in the UK just as they do here.

    • GaiusTrebonius

      It’s not the Greens who are the problem for fracking. There is no support for it amongst Labor, the Lib Dems, and the SNP, and very little amongst the Tories. Just as with GM crops, the Luddities are the vast majority in the UK.

  • Jacksonian_Libertarian

    I expect more stories of this nature as falling oil prices put pressure on the most costly oil producers. Old and inefficient oil wells that cost more to maintain and produce steadily less oil, particularly in the old fields of OPEC, Russian, Norway, Great Britain, etc… are more likely to get shut down, than the new cutting edge wells and systems being developed by the American shale oil producers.

  • Boritz

    Seventy years ago Brits comprehended what they now don’t. It’s not good to be an island nation dependent on shipping for every last necessity.

    • Josephbleau

      Which is why,as I am sure you know, why the Royal Navy was a national treasure, now not so much.

  • Kevin

    People in New York only have to look as far as Ohio – they still are against it. The problem is that the gentry liberals working in bloated financial sectors in both NY and the UK are in control and don’t really care about others who would benefit from jobs or economic growth in the industrial sector. In the UK the are more than content to see the elderly die from the cold due to high energy costs than increase energy production.

    • S.C. Schwarz

      Don’t underrate the effects of ideology and propaganda. I live in New York City and all my liberal friends, and that’s everyone I know, firmly believe this stuff. (The Keystone pipeline will end life on earth, if only the Koch brothers would die we could solve this problem in 5 minutes, etc.) Yes they’re low information voters but aren’t most people? The problem conservatives have no answer for, and aren’t even thinking about as far as I can see, is how to make progress when the other side controls all the channels of information.

  • Andrew Allison

    The big loser here is Scotland, the inhabitants of which must be thanking their lucky stars that the independence referendum failed.

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