The British government is set to raise the windfall tax on North Sea oil, a move expected to result in a significant decrease in revenue for gas producers and hasten the decline in oil output, according to an industry group’s report released on Monday.
Green Energy Goals
The newly elected Labour government, which took office in July, believes that the increased tax will drive a transition towards renewable energy. By reducing reliance on oil and gas, the government aims to cut carbon emissions and combat global warming more effectively.
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Industry Impact
Offshore Energies UK (OEUK) predicts that the increased tax will lead to a loss of 12 billion pounds ($16 billion) in revenue from 2025 to 2029 compared to the current tax structure. Capital investment in the sector is projected to plummet from approximately 14 billion pounds to 2.3 billion pounds over this period.
David Whitehouse, CEO of OEUK, stated, “The proposed tax changes will trigger an accelerated decline of domestic (oil and gas) production. A corresponding reduction in taxes paid, jobs supported, and wider economic value will be generated.”
NEO Energy, which focuses on North Sea operations, also expressed concerns. The company highlighted that the fiscal and regulatory uncertainties could impede investment across its projects, including its 50% stake in the Buchan Horst development project. Other stakeholders in the project include Serica Energy and Jersey Oil & Gas, which hold 30% and 20% stakes, respectively.
Future of Oil Production
The North Sea’s oil production has been in decline, dropping from a peak of 4.4 million barrels of oil equivalent per day (boed) at the beginning of the 2000s to about 1.3 million boed today. The North Sea Transition Authority (NSTA) projects a further decline to under 200,000 boed by 2050.
Following its election, the Labour government announced that the Energy Profits Levy would be increased to 38% from the previous 35%, effective November 1. This adjustment brings the total tax on oil and gas activities to 78%, making it among the highest globally. Additionally, the government will extend the levy until March 2030 and eliminate the 29% investment allowance, which allowed companies to offset tax from reinvested capital.
A Treasury spokesperson commented, “We are committed to maintaining a constructive dialogue with the oil and gas sector to finalize changes to strengthen the windfall tax. We want to ensure a phased and responsible transition for the North Sea.”
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