Coalition faces backlash on North Sea oil

Just a week after the chancellor announced an unexpected £2 billion tax rise on North Sea oil companies to finance his 1p cut in the duty on fuel, three major oil companies have announced that they are considering shelving investment projects in light of the statement.

Yesterday, one of the world’s largest oil firms, the Norwegian owned Statoil announced that it has taken the decision to postpone the development of the Mariner and Bressay field projects to the South East of Shetland, amidst concern over the chancellor’s surprise move.

In announcing the move, a spokesperson for the company explained:

“The proposed tax change has significant impact on the project economics of Mariner. We have to pause and reflect to evaluate what impact this will have and consider how to proceed after this.

“This is a project about to be developed. With this tax increase, there is a substantial impact.”

This has now been followed by similar decisions by Scottish-Gas owner, Centrica which is reported to be considering its current and future developments and Valiant Petroleum which has said that it has taken the decision to cancel a project worth up to £93 million.

In defending the government’s decision, the Lib Dem Scottish secretary, Michael Moore, argued that the increasing taxes on oil companies in this way was the “right and fair thing to do”. However, despite his defence, he and his party colleague treasury chief secretary Danny Alexander, are facing growing unease in their own back yard at the decision and the likely impact it will have on jobs and growth in Scotland.

Speaking for the Aberdeen city Council, a city dependant on the oil and gas industry, the Lib Dem leader of the authority, John Stewart, attacked the move. In making clear that he intends to write to the Scottish secretary on the issue he concluded:

“I am not happy at all, it is really galling. We had seen investment coming back into the North Sea. Expenditure seemed to be on the up and this could undermine it all. That investment may not now take place.

“I think it is ill-considered. It’s going to have an impact on growth - economic and population growth. I certainly think they should review the decision after six months at the very least.”

His words came after two senior Scottish Lib Dem MPs, Malcom Bruce and Sir Robert Smith voted against the tax rise. Speaking following the Statoil decision, Bruce explained:

“This shows how much damage this ill-thought-out tax change is doing both to UK plc and our most important industry.

“It changes the game and many other contracts and projects will be under review. The government must engage to try to undo some of the damage, but some of it is probably irreversible.”

Meanwhile, opposition parties have targeted their fire on Danny Alexander, after his refusal to apologise for the initiative.

Labour Holyrood candidate for Aberdeen Central Lewis Macdonald argued:

“It is shocking that Danny Alexander is almost bragging that this was his idea. How any Scottish MP can think that putting Scottish jobs at risk is a good idea is beyond me.”

The chancellor’s decision has also served to fuel Alex Salmond’s calls for Scotland to claim a right to a share of North Sea oil revenue to spend on Scottish priorities.