TPT May 2017

G LOBA L MARKE T P L AC E

› These ringing assertions prompted Mr Silverstein to ask another rhetorical question: how do the EU reforms announced in February compare or differ from this vision? He did not answer it with very much precision. “Imposing any tax is difficult,” he wrote. “Getting all governments everywhere around the world to impose the same tax at the same rate is even harder.” Oi l and gas Energy companies operating in the Nor th Sea are realising some early benefits from their reforms “Business Outlook Report 2017”, published on 7 March by Oil & Gas UK, attests to a revival in the UK Continental Shelf (UKCS). According to the non-profit “voice of the UK offshore industry”, following an intensive two-year drive to improve efficiency, streamline costs and boost productivity, that industry is now in better shape to compete for investment. The report notes that domestic oil and gas production continues to rise and unit costs are improving, resulting in a more resilient and globally competitive basin despite ongoing lower commodity prices. The expectation is that energy companies exploring and producing in the North Sea will generate positive free cash flow in 2017 – the first time in four years. Chockful of buoying statistics, the report points to a further 5 per cent rise in North Sea output to 1.73 million barrels of oil equivalent per day (mboepd) in 2016. Production has been rising since 2015, bucking a 15-year trend of decline, and should continue to rise over the next two years to peak at between 1.8 and 1.9 mboepd by 2018. Oil & Gas UK attributes this to recent strong investment in new development – bringing a total of 34 new fields into production since 2013 – as well as to improved productivity on existing fields. A further 13 to 18 new fields could start producing this year, building on that success. By 2018, recent start-ups are expected to constitute around one-third of UKCS production. Efforts to bring the industry’s costs under control are also seen as effective. Average unit operating costs have improved by half within two years from $29.70 per barrel to $15.30/bbl. Capital efficiency is also improving. Oil & Gas UK identified a reduction in development costs for newly approved projects of over 50 per cent since 2013, and expects these costs to be lower still in 2017. › Deirdre Michie, CEO of Oil & Gas UK, duly took note of the “considerable” challenges ahead for UK North Sea operators, particularly for companies in the supply chain. To address these, the trade body is appealing to the Treasury to extend the investment allowance to operational activities focused on maximising economic recovery. “Business Outlook Report 2017” also pointed out that exploration in the North Sea remains at record lows. In its view, if the UK is to unlock its remaining estimated resource of up to 20 billion barrels of oil and gas, the basin urgently needs fresh capital to stimulate activity. Even so, according to Ms Michie, “Confidence is slowly returning to the basin.”

Steel On both sides of the Atlantic, initiatives to reduce carbon emissions engage entities beyond the “green” community “With steel prices falling, multinational steel firms are fighting to stay alive. But the industry is a heavy user of carbon and is responsible for 5 per cent of global emissions, which is putting even more pressure on those domiciled in countries with tough carbon rules. What to do?” The question posed by Ken Silverstein in Environmental Leader stemmed from the passage in early February by the European Parliament of reforms that would increase the price of carbon by cutting the emissions allowances granted to firms. The measures include the European Union’s first border tax on carbon, levied on cement imports. Reviewing responses to the EU overture, Mr Silverstein noted Europe’s steel firms, also heavy users of carbon, were saying that their exclusion from the scheme is unfair. (“Steel Firms Pressuring EU to Apply a Carbon Tax Fairly,” 17 February) Steelmakers in Europe would reportedly pay up to $32 to emit a ton of carbon while foreign producers selling their product to the EU would get a free ride, putting the domestic producers at a disadvantage. In their view, the EU steelmakers are simply asking their governments to tax all producers equally. Citing a report in the Economist that CEO Lakshmi Mittal of ArcelorMittal, the world’s biggest steelmaker, had come out in favour of the carbon tax, Mr Silverstein wrote that “in theory”, at least, Europe’s oil industry is also on board. Companies such as BP, ExxonMobil, Royal Dutch Shell and StatOil do not, he said, generally advocate for taxes or restrictions; but they think that such measures would be more efficient than a patchwork of international laws. Moreover, they have major investments in natural gas, which is expected to continue to be the fastest-growing fuel in the US. In the US, the Climate Leadership Council – comprising older, establishment stalwarts of President Donald Trump’s Republican party – have released a plan to begin taxing carbon at $40 per ton. “The Conservative Case for Carbon Dividends” lays out a scenario in which that price would rise each year and carbon emissions would fall. › The group, which includes former Secretaries of State James Baker and George Shultz and former Secretary of the Treasury Henry Paulson, says that revenues of $194bn would be generated in Year One and increase to $250bn a decade later. That money would be returned to the American people in the form of a “dividend”, although separate versions have suggested it go toward funding newer technologies to reduce emissions. “If you look at the priorities of President Trump, our plan ticks every one of his boxes,” said Ted Halstead, founder and president of the council, at a press conference in Washington, DC, reported by Scientific American and picked up by Environmental Leader . “It is pro-growth. It is pro-jobs. It is pro-competitiveness. It would balance trade. And, last but hardly least, it would be good for working-class Americans.”

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MAY 2017