Shell is reviewing plans to invest up to £25billion in Britain's energy system after the UK Government's latest multi-billion-pound tax raid on the country's offshore oil and gas producers.
David Bunch, Shell's UK chairman, said yesterday that the expanded windfall levy announced in last week's Budget is forcing the company to re-examine a slew of projects in the pipeline, from North Sea investments to renewable energy schemes.
Mr Bunch told the Telegraph this meant Shell "cannot take it for granted" that the full investment plan will still go ahead.
His comments are a blow to Chancellor Jeremy Hunt and Rishi Sunak, the Prime Minister, as they face criticism that the Budget did not include enough measures to spur economic growth.
In his speech to the Confederation of British Industry's annual conference on Monday, the PM insisted that the Budget had restored confidence and stability.
He acknowledged there was "more we need to do", but said the government's decision to protect spending on research and development would boost innovation, and he called on businesses to step up investment as well.
Reconsidering projects
However, speaking at the same event, Mr Bunch warned that the expansion of the energy profits levy (EPL) threatened to "chill" investment in the North Sea - and that Shell itself was now reconsidering a range of projects as a result.
He said: "It brings a strong headwind. When we looked at the long-term investment plan, and the likelihood of projects, we assumed a kind of fiscal calculus and that's changed - so you've got to rerun everything.
"To that extent, projects that are already out the door, some will be impacted. I don't expect any of the ones that are currently in production to be back-pedalled.
"In terms of future projects, you're going to have to rerun the economics and take a view on a project-by-project basis."
In March, Shell announced it was looking to invest between £20billion and £25billion in the UK energy system over the next decade.
Mr Bunch said at the time that three-quarters of the money would be spent on zero-carbon projects, accelerating the firm's energy transition.
Cannot take it for granted
Asked yesterday whether the expanded EPL had thrown these plans into doubt, Mr Bunch replied: "Yes. We cannot take it for granted that the full £25billion will be invested."
He said the tax is also set to be in place for too long and should be dropped before 2028 if oil and gas prices fall significantly. Shell is lobbying the Treasury for changes.
A Whitehall source on Monday rejected calls for a rethink, however, insisting that the EPL would be included as proposed in legislation due to be laid in Parliament next week.
But it came as oil prices slumped to their lowest level since before the war in Ukraine after Saudi Arabia and other Opec countries were reported to be discussing a boost in output, while China is tightening Covid-restrictions, reducing expected demand.
The report was denied by Saudi Arabia, but it sent the price of Brent crude tumbling below $83 a barrel for the first time since January.
Industry sources suggested that if oil prices dropped below $80 a barrel, it would make investments less viable.
Price savings
Despite the drop, however, the RAC accused supermarkets of failing to pass on the price savings to motorists at petrol station forecourts, charging "far higher prices than they should be".
It said supermarkets' profit margins are around 15p per litre for petrol and diesel, meaning customers are being charged an "unnecessarily high" average price of 161p per litre for petrol and 184.4p for diesel.
North Sea oil and gas producers were left reeling at the sheer size of the tax grab on the sector in last Thursday's Budget.
The Chancellor hiked the already-controversial EPL by another 10% to 35% - bringing the overall tax rate from January to an eye-watering 75%.
He has also extended the lifespan of the levy until March 2028 from the previous date at the end of 2025.
The EPL is now expected to raise a total of £40billion - double the previous figure of £20billion. The total tax take from operators in British waters in the next six years will hit a staggering £80billion.
Anxious wait
Aberdeen's oil and gas industry is now waiting anxiously to see which Shell projects in the North Sea could be under threat.
Just last month, Shell made a multi-million-pound UK acquisition. The decision to buy Corallian Energy from Reabold Resources gives it ownership of the Victory gas discovery west of Shetland.
The Corallian deal came just a matter of weeks after Shell decided to develop the Jackdaw gas field, which is also located in British waters.
A Treasury spokesperson told the Telegraph yesterday: "The energy profits levy strikes a balance between funding cost-of-living support while encouraging investment in order to bolster the UK's energy security.
"We have been clear that we want to encourage reinvestment of the sector's profits to support the economy, jobs, and our energy security, which is why the more investment a firm makes into the UK, the less tax they will pay."
However, despite this positive statement from the Treasury, there is no doubt other North Sea producers will be following Shell’s example after the tax hike and will be reconsidering projects.