Algy Cluff warns George Osborne must cut taxes and says there needs to be more drilling in the North Sea

 
Jessica Morris
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Picture taken 19 September 1984 in the North Sea o
The North Sea oil industry has been pummelled by weak oil prices (Source: Getty)

Oil baron Algy Cluff is warning of dire consequences for Britain’s energy future, unless the government takes swift action.

Cluff, who pioneered exploration in the North Sea in the 1970s, has added his voice to a growing number of industry figures urging chancellor George Osborne to make significant tax and rebate concessions in his Budget next week.

If he doesn’t, Cluff warns, Britain could one day be at the mercy of foreign governments.

Asked about the implications of becoming increasingly reliant on gas imports for our long-term energy security, he said: “We’ll have to pay whatever price is demanded or have our gas supply cut off completely.”

His comments comes as the European Union is striving to reduce its dependence on Russian imports and buy more gas from Norway and other producers.

Cluff blames Britain’s perilous energy policy on the failure of successive governments to think in terms of the next 25 to 30 years.

“We need new gas power stations, but not one is being constructed. That’s not because of the present government so much, but because of the incoherence of our energy policy, he said.

“The trouble started when Ed Miliband was the [Labour] energy secretary and then it was then compounded by the coalition [Liberal Democrat] minister Ed Davey.”

EU regulation is forcing older, uneconomic coal-fired power stations to close, just as ageing nuclear plants retire.

While the closures have been widely expected for years, not enough has been done to ensure new capacity is built.

However, a “no” vote in the in/out EU referendum taking place on 23 June could make politicians more anxious about Britain’s energy supply.

Without confirming which side he’ll be voting for, Cluff said: “I think [a Brexit] would be good for our determination to achieve self-sufficiency.”

Cluff added that one of the places politicians could look for more energy lies much closer to home, in the undiscovered oil resources that lie in the North Sea.

“The government doesn’t recognise what we recognise. The North Sea is still a reservoir of potential energy,” he said.

However, the North Sea oil industry has been pummelled by oil prices which have fallen around 60 per cent over the past 20 months. The oil rout has forced companies in the sector to scale back and even halt new projects, with exploration diving as a result.

Since 2014, North Sea firms have axed 65,000 jobs and the call for tax breaks is getting louder.

Industry body Oil & Gas UK wants the standard 50 per cent tax on production profits to be chopped by 20 percentage points, and the petroleum revenue tax of 35 per cent on older oil fields to be removed entirely.

Cluff also wants Osborne to introduce tax cuts and rebates as part of next week’s Budget.

This would help it to weather the current rout and ensure it’s well placed to capitalise when prices eventually rise.

When asked if the oil market has finally hit a bottom, he said: “Yes, I certainly think it will recover. It could rebound with a vengeance.”

While reluctant to predict exactly when this will be, he sees something suspicious in the way oil prices fell so dramatically.

“For a commodity of that scale to fall as fast as it did suggests something odd is going on,” he said.

“The Saudis’ strategy seems to me not to have worked. It seems to have caused them more distress than it has the people they’re attacking.”

Crude recently rallied to around $40 per barrel on rising expectations for a production freeze deal between Organisation of the Petroleum Exporting Countries (Opec) and non-Opec members.

The oversupply of oil has been compounded by the cartel’s refusal to cut production to price out the US shale gas industry.

Cluff expects oil prices to stabilise at around $40 to $50 dollars per barrel before Opec regroups in some form.

And while many feared that Iran’s return to the market will send oil prices even lower, Cluff believes it could actually be the catalyst that pushes Opec into action.

“If you read the press you’d think there are about 20,000 oil tankers just about to steam out of Iran. The fact is a lot of these holes have been shut for 25 years so the engineering involved in releasing substantial production is going to take some time.

“Far from being a further depression [Iran’s eventual return] could be the catalyst for Opec to get its act together,” he said.

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