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REFILE-UPDATE 1-UK tax break on NSea fields prompts 1.4 bln pounds investment
July 25, 2012 / 2:35 PM / 5 years ago

REFILE-UPDATE 1-UK tax break on NSea fields prompts 1.4 bln pounds investment

(Adds currency in headline)

* Centrica, GDF Suez unveil 1.4 billion pounds investment

* Certain gas fields exempt from tax on first 500 mln pounds

* Autumn gas strategy to include security of supply, gas CCS

LONDON, July 25 (Reuters) - Britain’s bid to revive flagging North Sea gas output with a 500 million pounds ($776.33 million) tax break for large shallow-water fields on Wednesday has unlocked massive new investments worth over a billion from top utility Centrica.

Hours after finance minister George Osborne announced measures aimed at lightening the tax burden on North Sea energy producers, Centrica pledged to plough 1.4 billion pounds into developing its Cygnus gas field with partner GDF Suez.

From Wednesday, new gas fields with 10-20 billion cubic metres (bcm) in reserves located in depths of less than 30 metres will be exempt from a 32 percent tax on oil and gas exploration on the first 500 million pounds of income, the Treasury 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,” said finance minister George Osborne.

Cygnus, Britain’s biggest southern gas basin discovery in 25 years, has enough gas to meet 5 percent of UK demand and is set to start producing by the end of 2015, Centrica said.

“The announcement of the shallow field allowance today saw a major obstacle to the sanction of this project removed,” Centrica said in a statement.

Projects will still pay a 30 percent Ring Fence Corporation Tax on all income from the fields.

The measure is expected to cost the government 20 million pounds per year in reduced income. Centrica expects to pay the government about 1 billion pounds in tax revenues from Cygnus, as well as creating 4,000 jobs.

It added that 80 percent of its 1.4 billion pounds investment will be spent with UK-based companies, as well as boosting energy security.

“As the UK becomes increasingly dependent on imported gas, today’s announcement represents a significant boost to the UK’s long-term energy security as well as creating much needed jobs,” Centrica Chief Executive Sam Laidlaw said.

Experts, however, said the tax relief was unlikely to encourage the significant investment needed to discover new fields.

“The Treasury states that this measure will only cost 20 million pounds a year, so it must believe that very few fields will qualify and that those that do will generate protected revenue over a significantly long period,” said Jeff Harris, co-head of natural resources at accountancy firm PKF.

This autumn the government aims to announce a new gas strategy in which it will set out what role gas-fired power plants should play in Britain’s energy mix until 2030, the security of supply of gas and the potential for gas in carbon capture and storage (CCS) technology.

In its Energy Bill, the government proposed that gas-fired power plants be the main technology to back up intermittent renewable energy, such as wind and solar projects.

“We do not expect the role of gas to be restricted to providing back-up to renewables, and in the longer term we see an important role for gas with CCS (carbon capture and storage),” the Department of Energy and Climate Change (DECC) said in a separate announcement on Wednesday.

In July, DECC closed a billion pounds funding competition for Britain’s first large-scale CCS project, where carbon emissions from power plants are retrieved and buried underground.

At least one project proposed by utilities Shell and SSE plans to trial CCS technology on a gas-fired power plant. ($1=0.6441 British pounds) (Reporting by Karolin Schaps and Oleg Vukmanovic; Editing by Alison Birrane and Mike Nesbit)

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