A crucial North Sea pipeline network is facing possible closure a decade earlier than planned because of the Government’s North Sea tax raid.
The Forties Pipeline System, which connects 80 offshore gas and oil fields to the UK mainland, may shut down as early as 2030 because Labour’s oil and gas tax policies will “suffocate” the industry, its chief executive has warned.
The pipeline, which is part of industrialist Sir Jim Ratcliffe’s Ineos empire, enables 29pc of the UK’s oil and 30pc of its gas to reach customers and was expected to keep running until the mid-2040s.
However, daily flows have plummeted from 1m barrels of oil a day to just 200,000 and are set to fall further as Labour’s tax raids and drilling bans slash output from offshore platforms.
The expected decline threatens to make the system uneconomical far earlier than planned.
Andrew Gardner, the chief executive of Ineos Forties Pipeline System, said: “Back in 2017, we told our customers and workforce we’d operate [until] 2040 or beyond, because the amounts of hydrocarbons still left in the ground meant the oil and gas would keep flowing.
“But if Labour’s tax policy stops our customers offsetting their drilling and other investment costs against tax, then volumes will shrink – and we’re looking at 2030-35 as a more likely end date.”
Ineos Forties Pipeline System owns and runs the 500-mile-long network of pipes, hubs and other infrastructure that link oil and gas platforms dotted around the UK’s North Sea to the mainland.
The company bought the pipelines from BP in 2017 and committed to investing £500m to ensure it could run until the 2040s. However, the Government’s plans to curtail capital and investment allowances means the system could face decommissioning instead.
Mr Gardner’s warning comes after Ineos recently confirmed plans to close Grangemouth refinery in Scotland in early 2025 with the loss of hundreds of jobs. The 500 people working for Forties Pipeline System may now face the same fate.
The closure of such oil and gas infrastructure will be cheered by environmentalists and is seen by the Government as a necessary step towards reaching net zero.
However, this deindustrialisation has angered communities affected by it and some of Labour’s union paymasters. Gary Smith, general secretary of the powerful GMB Union, which represents many offshore workers, said: “Successive governments have taken a hostile position and a fundamentally dishonest position on the realities of oil and gas. We are going to need oil and gas for decades to come.
“What is totally counterproductive from a Labour perspective is taxing the industry out of business and putting bans on new exploration. You’re going to create a cliff-edge for the industry which will have devastating implications.”
While billionaire Sir Jim was supportive of Sir Keir Starmer in the run up to the election, he criticised Labour’s North Sea policy during the campaign, warning it would tax the UK oil and gas industry “out of existence”.
A spokesman for Sir Jim said this weekend: “Over the decades the UK has invested billions in North Sea infrastructure – which continues to serve the UK economy, society and the Exchequer extremely well.
“It is unfathomable that Labour’s policies will burn these in a flash. It is throwing away valuable technology along with the skilled workers necessary to meet today’s energy needs and to transition towards a low carbon future.”
Ed Miliband, the Energy Secretary, has pledged to strip the sector of most of its investment and capital allowances from November.
Such allowances are offered to all businesses but are crucial for the oil industry, which incurs huge exploration, set-up and decommissioning costs that can run over decades.
Without those tax breaks many operations are not viable.
Mr Gardner said: “The fear is that if Labour removes these allowances then annual output declines will accelerate from 5pc to more than 15pc – and the volumes flowing through the [Forties Pipeline System] will shrink even more.”
Profits have already slumped. The pipeline made post-tax profits of £65m in 2019, the year Ineos announced it was investing £500m into the system to “extend the life of the pipeline by at least another 20 years, supporting North Sea oil and gas production into the 2040s.”
Those profits had shrunk to £37m by 2022 and the biggest spend is likely to be on decommissioning the system sometime in the early 2030s.
Michelle Thomson, the SNP Member of the Scottish Parliament for Grangemouth, said the threat to the Forties was another blow for an already damaged area.
She said: “Too many politicians have limited understanding of industry. For too long Westminster has taken for granted tax revenues from oil and gas without understanding the long-term nature of investment and the impacts of changes in taxation on critical infrastructure.
“Grangemouth is already reeling from the shock of the announcement to close the refinery ... The entire area already risks losing jobs and skilled labour so this latest warning is utterly dispiriting.”
Mike Tholen, the sustainability and policy director at Offshore Energies UK, the trade body for oil and gas operators, said: “Operators are well aware of the risk of early loss of infrastructure and are working closely with regulators and policy makers.
“We have warned of the £13bn economic loss that inappropriate changes to the fiscal regime pose for oil and gas production and future energy infrastructure.”
The Treasury was asked for a comment.
The Forties Pipeline System began life in 1975, laid across the 110 miles of seabed between BP’s massive Forties oil field and Cruden Bay on Scotland’s east coast.
In the 50 years since then, many more North Sea oil fields have opened up and been plumbed into the same Forties pipeline. Up to 80 offshore platforms now rely on the system and would face likely closure without it.
At its peak, around 1999, the system carried 1m barrels of oil a day. By 2019 that had fallen to 400,000.
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