Offshore Energies UK yesterday warned that the UK Government's new windfall tax imposed on companies supplying the nation's oil and gas may already be undermining the major investments need to keep the country's lights on.
The industry body was commenting following a weekend report that were now possible question marks over development of two big offshore developments by Equinor and Shell following the introduction of the energy-profits levy (EPL).
This adds an additional 25% tax on the profits made by offshore energy firms.
The UK's oil and gas operators were already paying 40% tax on profits - the highest rate of any sector.
The extra tax means they are paying 65% - a rate which OEUK makes investing in new gas and oil fields in UK waters far less attractive.
Without such investment, production is predicted to decline rapidly - leaving the UK increasingly dependent on imports from other countries.
Offshore Energies UK (OEUK) research suggests that, without new investment, by 2030 around 80% of UK gas supplies and more than 70% of oil supplies will have to be sourced abroad.
Sudden new taxes
Deirdre Michie, chief executive of OEUK, said it was for Equinor and Shell to comment on their own particular plans, but added: "This is an industry that thinks and plans long-term, so sudden new taxes will always disrupt investment plans.
"The windfall tax may not affect projects already under way, but is likely to deter investments under consideration, for which funds have yet to be committed. The UK's offshore sector includes many independent companies who spend years planning investments that can be very risky.
"That is why the industry always considers a stable and predictable fiscal regime to be key to its investment criteria.
"Our industry is very proud to pay its taxes and support the UK Government and consumers, especially in difficult times like these. The problem is that if new taxes are imposed, there is always a negative impact on investor confidence.
"In particular, such moves increase the cost of borrowing for new projects, making it more difficult to raise the money needed to maintain existing energy supplies and build the low carbon energy systems of the future.
"The result will be a decline in oil and gas production in years ahead - just when the UK most needs reliable sources of energy."
Completely at odds
The UK Government's position on the effect of the new windfall tax on offshore oil and gas producers is completely at odds with the view of the sector, as was confirmed at the weekend.
In the Press and Journal, Energy Minister Greg Hands insisted the new energy-profits levy will not deter investment.
And the sector has a lot to be positive about in a wave of renewable projects gathering pace, he said.
Mr Hands was speaking just after he returned to Aberdeen following his visit to an offshore platform.
He said: "I have every confidence investment will not be affected by the announcement by the Chancellor on May 26.
"There were a lot of allowances for investment within that.
"Our message is we want to see people investing in oil and gas."
Mr Hands said he was a strong advocate of making sure conditions are ripe for companies to spend in the UK, having previously served as Britain's investment minister.
North Sea oil and gas has a "fantastic track record", while the north-east and the rest of the UK can also reap the rewards of the world's largest offshore wind sector, he said.
The minister said assets like the Elgin-Franklin fields, together producing about 5% of the UK's gas requirement, were vital for Britain's energy security.