Virtual Lancaster

Gas giant Centrica has threatened to close one of its Morecambe Bay gas fields, which provides some six per cent of the UK’s annual gas needs.

The possible move comes in response to increased taxes placed on oil companies and just as the three fields in Morecambe Bay are closed for a month of maintenance.

Now, the BBC reports Centrica is saying it might not reopen the South Morecambe field.

“UK oil and gas producing fields are now subject to some of the highest levels of tax in the world,” a spokesman said.

“At these higher tax rates, Morecambe’s profitability can be marginal … Accordingly, we may choose to buy gas for our customers in the wholesale markets in preference to restarting the field after planned maintenance.”

Morecambe Bay produces about 6% of the UK’s annual gas requirements, or up to 12% of residential gas demand, according to Centrica, a company set up in 1997 following a demerger with British Gas. Discovered in 1974, production started in the Bay in 1985 with the South Morecambe gas field. The North Morecambe terminal was built in 1992 and the Rivers Fields Area gas field was discovered in 1982.

The Scotsman newspaper describes Centrica’s threat as the action by the energy giant as “the sharpest sabre-rattling yet by an energy industry disenchanted with the tax crackdown that it feels will threaten investment and jobs”.

The paper notes that the threat comes as the oil companies make a final effort to thwart Chancellor George Osborne’s tax rise, designed to raise £2bn to fund a cut in fuel duty.

Representatives giving evidence to the UK energy and climate change committee on Wednesday will restate concerns about the impact of the tax raid on investment and jobs.

They will also push for measures to mitigate the rise in the supplementary charge from 20 to 32 per cent, even though the Chancellor recently dismissed claims that offshore investment would be hit.

Centrica says the tax increase means its North Morecambe field is now subject to a 62% tax rate and South Morecambe 81%. Morecambe Bay is a declining basin and Centrica has been managing the dwindling reserves by producing from it mainly in winter when UK gas demand and prices are highest.

In 2006, despite a decline in production at the fields due to maintenance, Centrica reported Morecambe Bay contributed an extra £217 million to the company’s UK generated revenues, even on the then 75% tax rate imposed (see Centrica news release here).

A Treasury spokesman told the Guardian newspaper the tax rise was essential to help motorists cope with the soaring cost of petrol. “The decision to increase the charge on oil and gas companies … has allowed the government to lower fuel duty, helping hard-pressed motorists at a difficult time. Even with this change, average post-tax oil profits per barrel are forecast to be higher in the next five years than the last five, meaning that profits are expected to stay high.”