A new tax relief for shallow water gas fields has been announced today by Chancellor George Osborne.
The allowance is aimed at supporting new large gas projects in the southern North Sea.
Gas projects lost out in the 2011 Budget when a tax on oil and gas producers, in addition to corporation tax, was increased to 32% on the strength of the oil price – despite gas reaping lower returns.
The Chancellor today said the allowance signaled a long term commitment to the role gas would play in the UK’s future energy mix.
The details of the allowance are that it will protect the first £500m of income from qualifying fields from the 32% supplementary charge tax rate paid by oil and gas producers in addition to corporation tax.
Qualifying fields will be new large shallow-water gas fields whose development is authorised for the first time on or after today.
They will have to be in less than 30metres of water and with gas reserves of between 10billion cubic metres (bcm) and 20bcm, tapering to no allowance at 25 bcm.
Mr Osborne said: “Gas is the single biggest source of energy in the UK. Today the government is signalling its long-term commitment to the role it can play in delivering a stable, secure and lower-carbon energy mix.
“At the Budget, we announced an ambitious package of support to stimulate billions of investment in oil and gas production in the North Sea.
“Today’s news is a further sign of the Government’s determination to get the most out of a huge national asset.”
The Government has pledged to publish a gas strategy later in the year with the aim of giving certainty to investors on the UK’s long-term commitment to gas as a vital part of the transition towards low-carbon energy generation.
It also said it would continue to work with oil and gas firms on a mechanism to remove decommissioning relief uncertainty.
Today’s announcement was made as the UK Government’s Energy Secretary also announced the level of the Renewables Obligation Certification (ROC) banding for onshore wind electricity generation until March 2014.
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