Oil and gas extraction provide a healthy income for the Danish state – 16.1 billion kroner in 2015, to be exact. So in December, when Maersk Oil threatened to close a lucrative field in the North Sea, it got the government’s attention.
90 percent of Danish oil and gas has come from the Tyra field in the North Sea since it was opened in 1984 by Dansk Undergrunds Consortium (DUC), a group of oil companies that now includes Maersk, Chevron, Shell and the state-owned Nordsøfonden.
But as the gas was extracted and the sea bed sank, so too did the platforms, which are now five meters closer to sea level. Vulnerable to rogue waves and bad weather, Maersk Oil, negotiating on behalf of the DUC, argued that the platforms would have to cease production in October 2018 unless they could find an “economically viable solution for full recovery of the remaining resources in the Tyra field”.
Tax breaks or else
It wasn’t hard to read between the lines – the needed economic incentive was tax breaks, and if the government wouldn’t grant them, it risked missing out on even larger amount of taxable income if the fields were decommissioned.
Three months of negotiations were conducted before a settlement was reached in late March. In exchange for lower taxation between 2017 and 2025, Maersk Oil promised to invest in the Tyra field and increase output by the equivalent of 129 million barrels of oil. If the price of oil rises above $75 a barrel, the government is allowed to increase the taxation and recoup the tax break.
So while the government expects to forgo 3.5 billion kroner of revenue in the short term, they hope to make at least an additional 26 billion before 2042.
“There need to be substantial investments, such as the redevelopment of the Tyra field, which is why we’ve decided to lower the taxes so that it becomes attractive for private companies to continue to develop gas and oil fully over the coming years,” stated finance minister Kristian Jensen of the Liberal Party (Venstre) in a press release.
“The alternative is that the state will miss out on billions in potential income, and that the industry would lose jobs.”
Maersk Oil’s Chief Operating Officer, Martin Rune Pedersen, echoed the sentiment and said that the agreement makes the Danish North Sea a more competitive area for oil and gas companies to invest and develop new opportunities in.
“A redevelopment of Tyra can be a catalyst for prolonging the life of the Danish North Sea. It can protect valuable revenues to the Danish state and Danish jobs – especially in the Esbjerg area.”
Esbjerg, the industrial harbour town on the east coast of Jutland, is expected to gain around 4,000 jobs thanks to the deal.
The arrangement was also supported by parties on the left wing, including the Social Democrats (Socialdemokraterne). Finance spokesperson Benny Engelbrecht said he was pleased the deal would bring in much more revenue over the longer term.
“This deal will ultimately make the state money that can be used to strengthen welfare,” he told Ritzau.
The Socialist People’s Party (SF) also supported the plan, and argued that they ensured that it wasn’t too expensive in the short term.
“It’s far too important to just leave up to the government,” SF leader Pia Olsen Dyhr told Ritzau. “We didn’t just have the fight on Facebook. We took the fight to the negotiating table. We have made sure that the bill didn’t land up with you or me, but will be paid by the business world and the oil companies.”
Dyhr’s social media reference pointed to the debate on the left about whether Denmark should be investing in extracting more fossil fuels at all. This was one of the reasons why Alternativet (the Alternative) and the Red-Green Alliance (Enhedslisten) opposed the deal.
Rasmus Nordqvist, political spokesperson for Alternativet, expressed disappointment.
“It’s never been warmer, the sea ice at the poles is melting at a record pace, and we are experiencing more and more extreme weather and climate catastrophes,” he wrote in a column for TV2 News.
“So what should we do? The Alternative is not in any doubt – the answer is not the North Sea deal.”
He concedes that the government made an effort to consider the environment in the deal by setting aside 100 million kroner to research more environmentally-friendly and energy-efficient means of producing oil and gas. But it’s too little too late, he argues.
“The climate crisis is going to cost a lot of money – socially, economically, but also environmentally. That bill is one we will all pay, in large part with human lives. Climate change is deathly serious, and Denmark has a responsibility to respect global goals to stop it before it gets fatal. We need to live up to that responsibility by investing in the future, not the past.”
Speaking to Ritzau, Enhedslisten’s political spokesperson Pernille Skipper argued that the deal is just another example of the oil industry short-changing the public.
“It’s completely unreasonable that Maersk, once again, is given millions from the state that we could use to develop our society, welfare or invest in green jobs,” she said. M