The North Sea could power Britain for decades, but windfall taxes and political uncertainty is driving away billions of pounds of investments needed to maintain oil and gas production now and create low-carbon energy in the future.
Offshore Energies UK’s business outlook published today describes how nine out of 10 oil and gas operators are cutting back investment.
Companies cite a mix of high taxes, political uncertainty and inflation as key factors in their decisions.
It follows the 35% windfall tax on hydrocarbon producers, while offshore wind operators face a 45% levy.
OEUK says those tax rises make it much more difficult to finance new projects – as have the Labour party’s proposals on tax while restricting further exploration should it win power.
Cuts in investment mean the UK’s potential oil and gas resources have immediately been downgraded, with 500million barrels less likely to be produced.
Rapid movement
The study also finds that offshore operators and their supply-chain companies are rapidly moving to embrace offshore wind and other low-carbon technologies.
“The ongoing diversification of oil and gas companies is accelerating and will be crucial in building future capacity,” says the report.
“Companies expanding from oil and gas have plans to support the development of over 8GW of UK capacity, and up to £20billion in capital investment, by 2030.
“In total OEUK members, including companies solely focused on wind projects, have plans which support 13GW and £30billion respectively. Together, these could cumulatively power over 14million homes in 2030.”
However, OEUK warns that regulatory and technological barriers are undermining progress, as is the impact of the Energy Generator Levy, which has shaken investor confidence.
Ross Dornan, the trade body’s market-intelligence manager, said: “Our report shows that there is no simple choice between oil and gas on the one hand and renewables on the other.
Keeping lights on
“The reality is that, to keep the lights on and grow our economy, we need both. By the mid-2030s, according to the Climate Change Committee, oil and gas will still provide half our energy needs. We should be aiming to get as much as possible of that energy from our own resources – meaning the North Sea.
“That makes it essential for the UK to attract investment. The alternative is to become ever-more reliant on other countries. Without investment, we risk having to import not just our day-to-day energy, but also the kit and expertise needed to reach net zero.
“That net-zero transition will need £1.4trillion of investment – which should be benefiting British companies and workers. But the current windfall taxes and political statements about the future of such levies risk driving that investment away. They give the Exchequer a short-term boost in terms of tax income, but the long-term impacts could be disastrous for consumers and the economy.”
- The development of wind farms in Europe and the US is at risk from supply-chain bottlenecks, a global trade group has warned.
Shortages of parts and assembly capacity risks holding back the technology required to cut carbon emissions, according to the Global Wind Energy Council (GWEC).
Politicians need to “act now” to prevent constraints emerging in the second half of the decade, the body added.
It comes as several wind farm developers and manufacturers have sounded the alarm over rising costs and slow grid connections.
Morten Dyrholm, chairman of the GWEC, told the Telegraph: “Scaling up wind energy requires healthy industries and healthy industries require thriving markets.
“There are challenges on the horizon that require bold policy action and strong support for the industry from governments.”
Electricity from wind
Electricity generation from wind has grown rapidly over the past 20 years, supplying almost 1,900 terawatt-hours globally in 2021.
The International Energy Agency says that figure needs to climb to almost 8,000 terawatt-hours by 2030 in order to hit net-zero goals.
The development of new turbines “stalled” last year amid cost pressures and logistical bottlenecks, with 77.6 gigawatts built globally.
But the market is now “ready to bounce back”, as China, Europe and the US ramp up their efforts to cut carbon emissions and reduce their reliance on gas.
However, the surge in demand means spare capacity in global supply chains is “likely to disappear in many areas by 2026”, the GWEC said.
With the supply and production of many wind-turbine parts currently concentrated in China, the crunch is likely to be felt in the US and Europe.