Page 4 - Euroil Week 50 2019

EurOil COMMENTARY EurOil
UK oil sector to gain from Tory win
Boris Johnson’s Conservative party promised oil industry support ahead of the election, whereas Labour called for an added tax
UK
BORIS Johnson and his Conservative party sailed to victory in December 12’s general elec- tions in the UK, capturing 365 seats – their best result since 1987 under Margaret Thatcher.
The Conservatives’ “Get Brexit Done” mes- sage cut through traditional party lines, luring away lifelong Labour voters in key northern constituencies. Labour suffered its worst per- formance since 1935, securing only 203 seats. Meanwhile, the Liberal Democrats’ clear-cut pro-EU stance failed to deliver gains, with the party obtaining only 11 seats and its short-serv- ing leader Jo Swinson losing her seat in East Dunbartonshire, Scotland.
The Scottish National Party (SNP) was another clear victor at the ballot, taking 48 of the 59 seats in Scotland. Leader Nicola Sturgeon described the landslide as a “clear endorsement” from voters for another independence referen- dum. Johnson has already hit back, saying the vote is not up for discussion.
Sector deal
The North Sea oil industry stands to gain from the Conservatives’ win, if Johnson fulfils his pre-election promises.
In their manifesto, the Conservatives prom- ised a “transformational” sector deal for the industry, which employs some 100,000 people in Scotland. Details have not been disclosed, though the broad aim of the deal is to provide extra sup- port to the industry in order to spur investment.
The Conservative government under John- son’s predecessor Theresa May rejected calls for a sector deal earlier this year, which had been proposed by the Scottish Affairs Committee. Proposals in 2018 suggested that GBP176mn ($230mn) in incentives could deliver GBP110bn for the UK economy between now and 2035.
The previous government’s response was that the industry was already getting “unprecedented support.
Commenting on the election result, Deirdre Michie, head of industry lobby group OGUK, said :“We look forward to continuing our con- structing working with the Prime Minister and the UK government as we work to ensure a safe and competitive industry which realises a suc- cessful future through the energy transition and a sector deal. We welcome all the new members of parliament and thank outgoing members for their support for this industry.”
“As we go into the new year our priority will be to ensure and reinforce recognition of the positive role our industry is playing in helping to achieve net zero emissions alongside providing a major economic contribution and a big part of
our energy security,” she said.
Promises of extra support come after a year
in which the industry has struggled with further rises in costs, disappointing exploration results and a drop in project sanctions.
On fracking
Onshore, the Conservatives have said little about their official position on hydraulic fracturing, though there are several key members of gov- ernment that support its use.
The Conservatives had imposed a morato- rium on fracking in November, based on a report by the upstream regulator Oil and Gas Author- ity (OGA) that concluded it was impossible to predict accurately the probability or magnitude of fracking-related tremors. The report was commissioned after a series of record-breaking tremors were caused in Lancashire as a result of Cuadrilla Resources’ fracking activity.
Opposition parties dismissed the move as a pre-election stunt, aimed at winning over Labour voters in northern English regions where companies want to frack. Some in the government voiced criticism of the ban, with Energy Secretary Andrea Leadsom describing it as a “disappointment”, and fracking as a “huge opportunity.”
It is unclear whether the Conservatives will change course and permit fracking. But the longer the ban remains in place, the more likely UK shale investors are likely to get cold feet. Cuadrilla’s owners are already reported to be considering a sale of the company
Whether or not Johnson delivers on his sector deal pledge, the industry is likely to fare better under continued Conservative rule than a Labour government. Ahead of the vote, outgo- ing Labour leader Jeremy Corbyn said he would impose a “windfall tax on oil companies, so that the companies that knowingly damaged our cli- mate will help cover the costs.”
OGA warned in response that any increase in tax would drive investors away and make UK oil and gas uncompetitive. Corbyn also made clear that Labour would make the fracking ban permanent.
The elephant in the room is Brexit - how the UK’s withdrawal from the EU will affect the UK economy and its investment climate. The uncertainty will naturally unsettle investors, and predicting just how Brexit will take shape is dif- ficult. In any case, the industry will be hoping for an orderly withdrawal. And they may be looking forward to the UK no longer having to abide by EU emission controls, carbon taxes and other environmental measures. ™
WHAT:
The Conservatives gained a big majority in last week’s UK general election.
WHY:
Johnson’s “Get Brexit Done” message cut across traditional party lines.
WHAT NEXT:
The government has promised a sector deal to encourage oil and
gas investment, and
may reverse course on fracking. But Brexit is the big uncertainty.
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w w w . N E W S B A S E . c o m Week 50 19•December•2019