The North Sea’s future hangs in the balance.
This bleak assessment from trade body Offshore Energies UK comes as the government continues to hold off on offering relief on windfall taxes - despite the damage being done on an almost-daily basis.
There had been hopes that Westminster’s energy-security plan released yesterday would contain details on a “price floor” for the controversial levy on North Sea oil and gas producers, but no announcement was forthcoming.
OEUK has been calling for a trigger price for the windfall tax - meaning it would only apply when oil or gas prices are high.
The prospect of the levy applying even when there is no windfall profit being earned, has proven a massive deterrent to investment in the UK’s North Sea with 90% of operators confirming that they are cutting back on investments.
Only yesterday, Ithaca Energy appealed to the government to overhaul the tax, warning that the future of a key oil and gas project could count on it.
Cambo decision
Gilad Myerson, the London-listed firm’s executive chairman, told Energy Voice that whether the company takes a final investment decision on Cambo this year “very much depends” on the government supporting the sector.
Without amendments to the windfall tax, he said it will be “very difficult” for Ithaca to sanction the West of Shetland oilfield.
And Harbour Energy said it was “disappointed” yesterday’s energy-security plan did not include support for domestic energy security through changes to the levy.
The company informed Energy Voice: “Industry has repeatedly asked government to introduce a floor price mechanism into the levy to ensure the tax is appropriately targeted at realised windfall profits and ceases to apply when oil and gas prices fall.
“This is an important factor for companies like Harbour when taking investment decisions including for both our traditional oil and gas projects and new ventures like carbon capture and storage.
After publication of the energy-security plan, OEUK’s chief executive David Whitehouse commented: “The future must be powered by lower-carbon energies and technologies including offshore wind, hydrogen and solar and carbon capture, so we are pleased with the measures announced to support them and manage demand.
No simple choice
“Oil and gas still supply 76% of the UK’s total energy so, while we build that future, there is no simple choice between oil and gas on the one hand and renewables on the other.
“All political parties have an obligation to be honest with the public about the central role of oil and gas for domestic and business use here in the UK for the decades ahead.
“The reality is that, to keep the lights on and grow our economy, we need both oil and gas as well as renewables.
“The companies producing oil and gas here are many of the same companies expanding and driving wind, hydrogen and carbon capture.
“We need to rebuild investors’ confidence, but windfall taxes are undermining our energy security and a successful home-grown energy transition.
“Prioritising UK oil and gas over imports is better for our economy, British jobs and for global emissions because we know oil and gas produced here often has a lower carbon footprint.
Tax rate
“The total tax rate for offshore oil and gas operators is now 75% – three times that of conventional UK business. When prices fall, as is already happening, the windfalls will disappear – but the tax will remain because it is locked in place till at least 2028.
“That makes these taxes a major deterrent for investors and OEUK continues to make the case that delivering energy security and net-zero today and in future is made much harder by the lack of clarity on when the windfall taxes will go.
“The same issue applies to offshore wind operators who face a similar windfall tax.
“Together these taxes risk turning the North Sea, which should be the bedrock of the UK’s energy security, into an unattractive place to invest.
“The Office for Budget Responsibility costed net zero at £1.4trillion in 2020 prices – of which more than £1trillion will have to come from the private sector. We need fiscal policies that attract those investors to the UK– rather than driving them away.”