Tax breaks ‘crucial’ for Arctic oil

24 Oct 2011 anna

On Friday 14th October, Texas governor and US presidential candidate Rick Perry unveiled his ‘jobs and energy’ policy which “resembles a wish list for the oil and gas industry” according to the New York Times. The plan, available online, involves scaling down the “job-killing” Environmental Protection Agency and opening up the Arctic National Wildlife Refuge for oil drilling. It also involves “leveling the playing field for all energy industries by eliminating subsidies” – hang on, double check – yes, Perry means eliminating “subsidies and loan guarantees for inefficient and uncompetitive green energy programs”.

The argument that cleaner energy would be economically uncompetitive without subsidies  is not new – what’s less commonly discussed is the level of subsidies needed for new oil extraction.

“Fiscal takes will be crucial to make any Arctic developments viable”, says Oswald Clint, Senior Research Analyst at market intelligence firm Bernstein Research, in an industry conference presentation (watch it online here). That is, with costs already driven up by delays on projected times and by technological challenges, oil and particularly gas extraction across the Arctic region makes no financial sense for companies unless local tax regimes are bent or “made favourable”.

And sure enough, the Russian government is expected to announce tax breaks to facilitate the development of the giant Arctic Shtokman gas field in the next month and a half, Deputy Energy Minister Yanovsky told Reuters. This joint Gazprom-Statoil-Total project has already experienced several delays, with infrastructure costs shooting up from 8 to 20 to 40 billion USD (again according to Clint’s presentation). Meanwhile a closed-access report by industry consultant Pedro van Meurs urges the Alaskan administration to catch up with Greenland and Canada in lowering their tax takes from oil production to provide incentives for investment in extraction.

So expect figures like Rick Perry to play their words carefully. Will Alaskan offshore oil receive ‘incentives’ if not ‘subsidies’ or ‘tax breaks’? Without such incentives, we’ve got a form of energy that is economically unviable as well as dangerous.

Focus Areas