It has been said many times that money makes the world go round and I for one am inclined to agree. Well, money…and oil. The UK budget was announced on 23rd March and of course, oil, petrol and fuel duty were big points of debate. UK motorists were pleased to hear that from 6 pm GMT on budget day, a 1p per litre cut in fuel duty was put in place, the fuel duty escalator was scrapped until 2015 and other plans to raise fuel duty were put on the back burner until April 2012. The duty escalator was cancelled as George Osbourne, UK Chancellor of the Exchequer, is reported to have said ‘it’s about doing what we can to help with the high cost of living and the high cost of oil.’
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However, North Sea oil producers were not as happy with budget announcements because the cut in fuel duty will be supplemented by higher taxes on profits from North Sea oil for the next five years. At the end of March, Mr Osbourne commented that ‘the price of oil has risen 35% in just five months. Oil companies are making unexpected profits.’ This has resulted in the creation of the ‘fair fuel stabiliser’ and from 24th March the supplementary charge on oil and gas production increased by 12% to 32% (making total tax on oil profits 62%). It is expected to create the £ 2 billion in tax revenue every year that will be lost by reducing fuel duty by 1p per litre, a sum of money that cannot be readily cut from the UK budget. Yet, adverse affects of this increase are already becoming clear. Valiant Petroleum is apparently reviewing its North Sea projects and Statoil are looking at the impact the higher tax level will have on the economics of its Mariner project. It has also been argued that this increase will result in a loss of jobs, increased fuel imports in to the UK and a drop in investment.
Even the CO2 emissions from the oil and gas industry (and British industry as a whole) will be generating more tax revenue as a £ 16 /t floor price has been put on carbon to come in to play on 1st April 2013 and is expected to rise to £ 30 by 2020. This floor price is of course going to increase government tax revenue but it could also be a measure to help reduce CO2 emission levels in UK industry.
From the above points, it seems to be clear that the price of oil and the money that is exchanged, taxed, earned and spent by the oil industry is very important to the UK’s economy. Would any one disagree if I speculated that this is indeed the case for the vast majority of the world? After all, Robert Bryce, Senior Fellow, Centre for Energy Policy and the Environment, Manhatten Institute, said at the NPRA Annual Meeting in San Antonio, Texas during March, ‘if oil didn’t exist we’d have to invent it.’
This issue of Hydrocarbon Engineering continues to look at the global profile of oil in the annual World Review. Turn to page 54 for a round up of contract news from within the downstream oil and gas industry from the last year with an introduction from Hydrocarbon Engineering’s Joseph Hester. The issue also looks at plant maintenance with Adhesive Services and Quest, gas processing and treating with Linde and gas analysers with Servomex.