Centrica rails at 81% tax rate as key gasfield is mothballed

One of Britain's biggest gasfields is to stay closed because Centrica says that the Chancellor's windfall tax on the oil industry has made it uneconomic.

The move will leave the country more dependent on imported gas and could drive up the cost for consumers.

Centrica said that Morecambe South, which provides about 6 per cent of Britain's gas, will not reopen for the foreseeable future because it was cheaper to buy gas from abroad than to resume production. It would, however, operate when demand was high.

The company closed the field, part of the Morecambe Bay complex, for scheduled maintenance last month, but it has become a barometer for the industry's response to the windfall tax announced in the Budget. Oil and Gas UK, the industry body, warned last week that its members would cut investment in the North Sea by as much as $20 billion over the next decade as a result of the tax. The shortfall from Morecambe South will be made up by importing more liquefied natural gas, which now accounts for 37 per cent of the country's supply, compared with 19 per cent last year.

Andrew Horstead, analyst at energy consultancy Utilyx, said the market had priced in Centrica's decision, with UK spot gas prices trading at 58p per therm - the sort of level seen in the winter when prices are traditionally higher. Wholesale gas prices have increased by about a quarter in the past six months and Mr Horstead said families should be prepared to pay more. "Because there is uncertainty about Japanese gas demand and Germany is shutting down its reactors, the market is nervous," he said. "The shutdown means we will be competing more with Japan for liquefied natural gas. Domestic customers should prepare themselves for price rises."

Mike Tholen, economics and commercial director at Oil & Gas UK, said that Centrica's decision was a rational response. "Clearly, it will nudge gas prices in the wrong direction. It's symbolic - it shows that an increase in the tax rate has a pretty immediate impact on commercial activities."

The Morecambe complex employs 400 staff and contractors. Centrica said that there would be no job losses since the other two fields were being reopened and Morecambe South would need to be fully staffed so that it can resume production when required.

George Osborne shocked the industry in March when he announced that the supplementary charge would increase from 20 per cent to 32 per cent to pay for a cut in fuel duty for motorists.

It means that, as an older field, Morecambe South would pay 81 per cent of tax in total. Centrica said: "At this level, profitability can be marginal and so we expect this field to operate on a more intermittent basis in future."

The Treasury said: "This is a commercial decision. We do not believe that the Budget changes significantly affected future investment."

From The Times