OREANDA-NEWS. February 02, 2015.The fall in oil prices is causing angst in the UK oil industry, which emerged in the 1970s as a response to the Middle East’s lock on production but is now plagued by high costs, high tax and infrastructure problems.

Lobby group Oil and Gas UK warned this month that 20% of the country’s oil production could be shut in this year, or nearly 200,000 b/d of capacity, as the price collapse of the last few months compounds pre-existing problems.

But the UK Treasury accused the organization of doing down its own industry, suggesting it risked undermining investor confidence.

In response to the price collapse, the government has started to row back from a 12 percentage point tax hike that it introduced in 2011 to howls of outrage from the industry. However, it resists claims that the hike may have contributed to the North Sea’s decline and maintains there is life in the industry yet.

The Treasury has said it is moving forward with plans to simplify the country’s labyrinthine system of upstream taxation by introducing an across-the-board investment allowance, for final approval in March, as well as introducing a new, streamlined regulator.

“We want to work with the industry to secure production and investment and keep that going — we can’t have the glass is half empty,” Exchequer Secretary to the Treasury Priti Patel told Platts in an interview.

“There is a risk — we know it’s tough, we know the industry has suffered, we know about job cuts and those factors — but the industry needs to be optimistic in the way that they engage with us and think positively about the future,” she said.

“We have confidence in the North Sea and believe … it has a long and prosperous life still ahead of it.”

There has been no shortage of doom and gloom. Companies such as BP, Chevron and Shell have all axed hundreds of UK jobs in recent months, most of them in Scotland. Robin Allan, the head of oil explorers’ association Brindex, told the BBC the North Sea industry was “close to collapse.”

A number of small companies have warned of difficulties meeting bond payment obligations, finding themselves thrown off balance by low prices, sometimes in combination with malfunctioning infrastructure or a lack of tanker loadings.

“The North Sea was already a tough place, even before the oil price drop. We saw falling production levels, high costs, very high tax, aging assets,” Shell CEO Ben van Beurden said this week. “It just got tougher,” he said, stressing the urgency of regulatory improvements and tax cuts.