More than £200 billion of UK energy investments, including low carbon solutions, are “at risk” due to the windfall tax, the North Sea trade body has warned.
At an industry event in St Andrews, Deirdre Michie, chief executive of Offshore Energies UK (OEUK), hit out at “flip flopping” policies from government in recent months, adding that the “onus” is now on Westminster to restore confidence.
Ms Michie took aim at the UK Government 10% hike in the oil and gas windfall tax last week, raising the headline rate to 75%, and called for a regime which is “fit for purpose” to protect projects.
She said the Enery Profits Levy (EPL) impacts developments which support energy security – with oil and gas still accounting for three-quarters of UK energy needs – and reaching net zero goals.
“Our sector, we know, has the skills, the technology, and the ambition to drive the energy transition.
“Indeed, our industry was planning to invest with the £200 billion in the broader energy sector, including low carbon solutions by 2030, thereby helping the UK to ensure that the UK can meet its net zero and its climate goals.
“But you know, tax changes such as the one announced on Thursday really do put this at risk and I think that the onus is now on government to build back investor confidence if we are to sustain these opportunities moving forward.
“So we continue to call on government to work closely with the sector to mitigate any short term unintended consequences of the tax hike. And we’re also reinforcing the need to create a long term tax regime which is fit for purpose that will protect investment in vital oil and gas projects and will simultaneously help to unlock the energy transition.”
Shell and Harbour
Ms Michie’s speech, at the St Andrews decommissioning conference, comes as Shell today revealed it is reviewing its planned investments of £25bn in the UK energy sector over the next decade following the windfall tax announcement.
UK country manager David Bunch has called for a price backstop to be imposed – which would see the windfall tax turned off if oil and gas prices drop.
When it was originally introduced by Rishi Sunak in May, he pledged to halt the tax if prices drop – but new chancellor Jeremy Hunt intends to keep it in place regardless.
Harbour Energy, the North Sea’s largest producer, has also voiced concern about the levy remaining in place to March 2028, even if prices fall.
The company is also investing in two major carbon capture and storage (CCS) projects in the UK: Acorn in Aberdeenshire and Viking Energy in the Humber region.
Earlier this month, in the lead up to the tax announcement, CEO Linda Cook said: “At a time when oil and gas producers are being asked to invest more to help ensure the UK’s energy security and are considering longer term, material investments in CCS, additional taxes would run the risk of undermining our ability to do either.”
For the decommissioning sector in particular, Ms Michie said there are two ways which the industry will be impacted, neither of them positive.
“I think there are two possible scenarios ahead. For some companies the EPL may mean projects become economic more quickly, resulting in cessation of production being brought forward, meaning decom activity happening sooner.
“On the other hand, it might mean a reprioritisation of spend where operators push back their decommissioning activity and prioritise their reduced capital on existing projects instead.
“Two different tales, neither of which are particularly good for the basin as a whole.”