Centrica mothballs gas field
Thursday 02 June 2011
Centrica, the parent company of household gas supplier British Gas, has carried out its threat not to reopen one of the UK's largest gas fields following the Government's decision to raise taxes on production.
The energy firm said South Morecambe, the largest of three production areas that make up the offshore Liverpool Morecambe Bay gas field, would stay shut following routine maintenance work because the higher levy announced in the Budget now made it uneconomic to operate.
The group first flagged up the possibility of mothballing the field in May when it said the Government's decision to increase the offshore drilling tax from 20% to 32% would cost it an additional £300 million in total.
The change raised the marginal rate of tax paid on gas produced at South Morecambe to 81% from 75%, a level where the firm says it is now cheaper to buy in from abroad.
At a wholesale price for gas of 58.9p per therm currently, analysts estimate Centrica would make a profit of just 7p after deducting the cost of production and tax.
Morecambe Bay can supply about 6% of total UK gas demand or about 12% of domestic demand. The smaller North Morecambe field is expected to return to production within the next few days as it will be taxed at a lower rate.
None of the 400 staff who work at Morecambe Bay are being laid off and Centrica said it would assess on a daily basis whether to keep South Morecambe shut.
Chancellor George Osborne increased oil and gas production taxes to help pay for a reduction in fuel duty for motorists but the move has sparked fury from the UK oil and gas industry.
Centrica's chairman Sir Roger Carr said at its recent AGM: "It's probable that these changes will affect our plans to invest in the UK North Sea, which will have an impact on jobs and North Sea investment."
John Cridland, the director-general of employers organisation the CBI, also said yesterday he had written to the Chancellor urging him to reconsider the move or else allow older, more costly fields to be exempt.
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