North Sea Energy Pricing Is Another (legalised) Scandal

By TruePublica: Here we are, at a moment with painful inflationary pressures on energy prices, alongside the wider cost of living crisis. Soon, it’s going to get a whole lot worse when the energy cap is lifted and prices rise sharply. These pressures have been caused by a sudden global demand increase and in some areas gas and oil output problems. Then there is the grand-standing of Vladimir Putin banging on Ukraine’s door and testing Europe by weaponizing gas exports.

Despite COP26 and the promises made or pledged, the British government continues to espouse the importance of North Sea oil and gas extraction because global supplies are short and it leaves the country potentially at risk of the lights going off. Indeed some politicians and newspaper columnists are demanding that the UK should turn the North Sea gas taps on – making the argument that they are ‘our gas’ taps to turn up.  Spoiler alert – It’s not our gas and we don’t own the taps!

However, there is something rather odd or angering depending on your stance in the gas statistics released last week by the government.

Odd (or angering) because at a time of eye-watering price hikes, and when politicians like Robert Jenrick are urging ‘us’ to increase ‘our production’ of oil and gas to avoid exposure to internationally-sparked price hikes and when supporters of fracking say ‘gas is the only answer’ and the sensible response is to get drilling – the statistics show the UK has been … exporting huge amounts of gas this winter. Yes, exporting.

Let’s not forget that we have been warned that without North Sea fossil fuels – the factories will close and our fridges will stop working. So, against that backdrop, we’re all prepared to stump up significantly increased amounts of cash to keep the lights on.

But the reality is that the UK energy statistics show that in the last three months for which data is available (Sept-Nov) – a period after the current ‘crisis’ entered full swing – the UK exported 31,975 GWh of gas.

(A Gigawatt hour, abbreviated as GWh, is a unit of energy representing one billion (1 000 000 000) watt-hours and is equivalent to one million kilowatt-hours.)

The figure for the same three months of 2020 was 15,830 – about half as much.

You might surmise this period was in Covid times so maybe that’s the anomaly – except that the 2019 figure for the same period was 19,633; and for 2018, 16,439. This winter is the clear outlier.

So why, at a time when Britain is apparently crying out for gas, is this happening? And more importantly, why is it happening at the worst possible moment since the oil crisis of the 1970s?

Richard Black of the Energy and Climate Intelligence Unit, where much of this information comes from says that – “the gas doesn’t belong to the British public or the British government, but to whichever company gets it out of the ground. And as any company would, they’re selling it for the best price they can get. Which happens to be, for large volumes of it, by sending it through the pipeline into Belgium and the Netherlands.”

Black goes on to say that “this is utterly normal corporate behaviour, and completely to be expected. But it sure knocks a massive hole in the argument that Britain needs ‘its own’ gas production for energy security.”

In reality, there is no ‘our gas’. It is extracted from rock in British territory: but the companies don’t have to be British, nor the investors, nor the supply chain. It’s not directed by the British government or used by the British people. It’s ‘the company’s gas’, not ‘ours.’

Fracking wouldn’t change this. Nor would increasing North Sea production, were that even feasible. Unless you want to argue for state ownership of the gas produced, it will always get sold where the profit margin is biggest, irrespective of the needs of the British people. And of course, it goes without saying that privatised energy and energy security are not bedfellows and energy security itself is always dependent on UK companies (not the government) paying the market price, whatever that is.

It’s a little bit like charging us for water supplies when the product itself falls out of the sky whilst paying massive dividends to investors after imposing price hikes on consumers.

And then there’s something else. Not only is Britain exporting oil and gas to the highest bidder (for maximum profit), to our own detriment – it was revealed that in the same period of these figures – that Shell and BP have not paid any corporation tax on oil and gas production in the North Sea for the last three years.

Not only that but Shell and BP did not just pay no corporation tax or production levies on North Sea oil operations between 2018 and 2020, but they actually claimed tax reliefs of nearly £400m, according to annual “payments to governments” reports analysed by the Observer.

Over the same three-year period, you’ll be pleased to know that these two companies paid shareholders more than £44bn in dividends. And just so everyone understands this – that is forty four thousand million pounds or three times the amount being demanded by the government on increased National Insurance with nearly enough change to pay for the £8 billion PPE scandal.

A petroleum revenue tax of 35% was effectively scrapped by the then chancellor, George Osborne, in 2016 and oil giants can now claim billions of pounds in taxpayer handouts for decommissioning rigs, when those costs were already priced in at the pumps.

To summarise, the energy companies extract a product in British territory, sell it to foreign competitors, ratchet up the prices to us in the UK, make huge sums of money, pay massive dividends to enrich themselves further – and then don’t contribute by way of taxes.

So, as Richard Black says, “you can argue for continuing UK oil and gas production on the basis of jobs, the balance of payments or whatever argument you want, but… please let’s not have any more of this ‘increasing UK production is essential at a time of crisis because the export figures tell a different story.”

 

Note: Richard Black is an honorary fellow of Imperial College and a former BBC news environment correspondent and a Senior Associate of the Energy and Climate Intelligence Unit. 

 

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