UK oil and gas sector warns windfall taxes are deterring investment

Oil and gasoline firms are scaling again North Sea operations and prioritising funding outdoors the UK due to the federal government’s windfall taxes, the trade’s commerce physique has warned.

David Whitehouse, the brand new chief govt of Offshore Energies UK, mentioned 95 per cent of members surveyed had been “negatively impacted” by the levy and have been “trying to make investments elsewhere”, including that “this leaves the UK reliant on abroad imports and places the UK’s vitality safety in danger”.

The vitality earnings levy was launched final yr to seize extra of the bumper earnings made by oil and gas producers following a surge in costs after Russia’s invasion of Ukraine. The federal government has since raised the levy, bringing the overall tax charge on the sector to 75 per cent, though there’s additionally a beneficiant funding incentive that enables a 91p tax saving for each pound invested within the UK.

Harbour Vitality, the largest oil and gasoline producer within the North Sea, is planning to reduce and evaluate its North Sea operations whereas TotalEnergies of France, one other massive participant in British waters, is slicing funding within the UK by 25 per cent on account of the windfall tax.

EnQuest has deferred drilling at its Kraken oilfield on account of the levy and US-owned Apache has cancelled a drilling contract within the North Sea, arguing the tax had made the area “much less aggressive”.

Whitehouse warned that the “tremendous tax is hitting all offshore firms onerous, giant and small, not simply those that make headlines”.

Though 76 firms submitted 115 bids for oil and gasoline drilling permits in a licensing spherical this yr, up from 104 bids in 2019, Whitehouse mentioned there was no assure these would lead to manufacturing.

Any enhance in oil manufacturing is not going to alter the long-term decline of exercise within the UK’s North Sea or immediately decrease gasoline costs for home shoppers because the oil worth is ready on worldwide markets.

However Whitehouse mentioned home output decreased reliance on imports and elevated vitality safety.

“We all know persons are struggling a value of residing disaster, however undermining our personal energy security and ramping up imports is just not the reply,” he mentioned.

Vitality analyst Wooden Mackenzie has additionally warned that the vitality earnings levy has wiped a mean of 40 per cent off the worth of North Sea producers.

Regardless of progress within the transition to renewable vitality, the UK nonetheless depends on gasoline and oil for 75 per cent of its vitality due to the intermittency of wind and solar energy and restricted battery storage.

A reliance on imported hydrocarbons and low ranges of gas storage go away the UK notably weak to cost spikes, though that is mitigated partially by its capability to import liquefied pure gasoline and convert it again to its gaseous type.

Local weather Capital

The place local weather change meets enterprise, markets and politics. Explore the FT’s coverage here.

Are you interested in the FT’s environmental sustainability commitments? Find out more about our science-based targets here

Wholesale gasoline costs have fallen sharply over the previous few months, partially due to gentle climate and an increase in storage ranges throughout Europe. However they continue to be unstable and there are fears of shortages subsequent winter.

Ashley Kelty, analyst at Panmure Gordon, mentioned the windfall tax was inequitable as “pharma and tech shares, which additionally benefited massively from the pandemic, are solely topic to UK company tax of 19 per cent regardless of the supernormal earnings they realised”.

However Tessa Khan, director of environmental marketing campaign group Uplift, mentioned: “It’s galling that the oil and gasoline foyer is complaining a couple of tax charge that’s roughly the worldwide common once they’re making bumper earnings and corporations like Shell are paying out extra to shareholders than they’re selecting to spend money on oil and gasoline.”