Contribution of the Offshore Oil & Gas Industry to the UK

The offshore oil and gas production industry continues to make a major impact on Britain's national and local economies. In 1999 the industry accounted for 84% of the UK's total primary energy production.

Although Britain's overall trade balance in 1999 was in deficit by over £26 billion, the value of this indigenous production was £16 billion, or some 1.8% of Britain's Gross Value Added. The scale of the contribution of indigenous oil and gas underscores the need to ensure optimum recovery of Britain's resources.

The UK has been self-sufficient in oil since 1980. Sustaining UKCS investment will determine how long Britain can delay the need to become a net importer of both oil and gas. The UK economy has benefited from £170 billion (2000 prices) in taxes since the 1970s.
In addition to the licence fees payable on the acreage awarded to each operator, the complex array of taxes paid by operators currently includes Royalty, Petroleum Revenue Tax (PRT) and Corporation Tax (CT), ring-fenced around the UKCS so that downstream losses cannot be offset against upstream profits.

In 1999/2000 the Government collected £2.6 billion from offshore taxes. The strong crude oil price in recent months has also significantly increased North Sea tax revenues. It is estimated that a sustained $1/bbl increase in the oil price will increase tax revenues by about £225 million in the first year and by about £300 million in each year subsequently.

The latest Treasury estimate (November 2000 Pre-Budget Report) for UKCS tax revenues in 2000/2001 is for some £5.3 billion, almost £2 billion above the corresponding forecast made 12 months earlier. Based on a 2001 oil price of $25.4/bbl, the Treasury estimate for 2001/2002 is £7.3 billion.

Figure 3 (on below) shows the dramatic rise in North Sea tax revenues predominantly related to the strong crude price in recent months.

The industry has invested some £190 billion (values at 2000 prices) in the exploration and development of UK offshore since activity began in the mid-1960s. Over the last decade the industry has accounted for some 18% of total UK industrial investment. After the massive development expenditures throughout the 1990s, development expenditure declined in 1999 to some £3.2 billion, but still represented 13% of UK industrial investment.

Projections for 2001 indicate a recovery in development expenditure with sanctioned, incremental, probable and possible investment of £4 billion or so, of which a significant proportion still requires further project definition and approval. These projections represent an increase of up to 30% over the estimate for 2000.

Contribution of the Offshore Oil & Gas Industry to the UK - graphs

Please click on the following graph images to see a larger view:

Figure 1 - UKCS Oil and Gas Production

Figure 2 - UK Oil Supply and Gas Demand

Figure 3 - North sea taxes (2000 prices) 1991-2001

Figure 4 - UKCS expenditures