Non-OPEC Countries Not Immune to Oil Price Drop
VIENNA — MEMBER states of the Organization of Petroleum Exporting Countries are not the only financial victims of the recent drop in oil prices. Non-OPEC countries such as North Sea oil producers, Norway and Britain, also have been hit hard by lower prices, as have the United States and the Netherlands.
Consumers may benefit when oil prices fall. But governments of non-OPEC countries, where oil and gas are produced, can lose just as much per barrel as OPEC-member governments.
Norway, Britain, and the US, for example, all lose revenue because they tax the profits from large volumes of domestically produced oil and gas, as do Canada and the Netherlands, on a smaller scale. When world oil prices fall, tax revenues in those non-OPEC countries drop immediately.
Non-OPEC production outside of Russia is about 35 million barrels per day - much higher than OPEC's total of about 24 million barrels per day. Since oil and gas prices around the world are closely linked, any drop in OPEC's price means a corresponding drop in prices and profits for the oil companies producing in non-OPEC states.
The North Sea has been an immediate victim. Low oil prices are squeezing almost all tax revenues out of production. Costs are high in the North Sea, so average profit margins recently have been narrow. Profits were pared sharply when prices fell in 1986. And the most recent price declines are cutting government taxes to the bone.
The revenue losses are high because tax rates on oil on both sides of the North Sea are high. They were close to 90 percent (including royalties) until recently - not much different than the tax rates in the OPEC states. Actual rates vary, but older fields pay a combined rate of tax and royalty of about 75 percent, although the rate for the newest fields is less than 40 percent.
Every dollar of price drop means that the British or Norwegian governments lose at least 40 cents per barrel per dollar. For much of the production, however,the marginal rate of loss is closer to 75 cents/barrel.
LOWER prices have eaten away most of the taxes collected by North Sea host governments. In 1985, Britain collected 11.5 billion from oil and gas production. By 1991, total revenues had fallen to 1 billion. The 1986 price drop carved away 90 percent of Britain's oil revenues.
The impact on per-barrel revenues is even more dramatic. In 1985, just before the price collapse, Britain collected 10.2 per barrel of oil equivalent of oil and gas. In 1991, the take had plummeted to barely 1 per barrel. The latest price drop essentially wipes out any net tax revenues in Britain. The loss compared with 1991-92 is more than 2 of government take per barrel, adding up to more than the latest reported tax revenues.
Norway is only slightly better off. In 1992, it collected about 32 kroner per barrel ($4 per barrel). This was much less than the per-barrel tax take in 1985 - about 140 kroner per barrel. But even those 1992 revenues cannot be sustained at current prices.
Dutch gas is no less affected. The Netherlands produces about 70 billion cubic meters of natural gas a year - the equivalent of 1.2 million barrels per day of oil energy. The gas is priced by formulas linked to the oil price. Marginal tax rates run at more than 90 percent. Any reduction in the gas price translates almost entirely into lower revenues to the Dutch government.
In 1986, natural gas taxes dropped from more than 25 billion guilders to about 6 billion guilders. The recent tax yield amounted to $7 per barrel of oil equivalent. However, the latest price drop could wipe out more than half of what is left. Exxon, a major owner of the Groningen gas field, refused to comment.
The prospects for the US are also dire. The US government taxes the income on almost 20 million barrels per day of natural gas and oil, so that the loss in royalties and income tax revenues to the states and the Federal government will be between $40 million and $100 million a day.
The revenue losses are real. What is uncertain is whether these losses might prompt changes in production policy or a renewed willingness to discuss production planning with OPEC.