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Released April 10, 2023 | GALWAY, IRELAND
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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--Nine out of ten firms operating in the U.K. North Sea are cutting back on planned investments due to high windfall taxes, political instability and inflation.
Industry association Offshore Energies U.K. (OEUK) estimates that around 250 million barrels of oil equivalent (BOE) have been removed from company plans, whereas another 250 million BOE have been downgraded from "probable" projects (meaning a greater than 50% chance of progression) to "possible" (a less than 50% chance). This means that 500 million BOE of potential has slipped, equivalent to one year of output from the U.K. Continental Shelf owing to levels of investment risk, the OEUK found in its 2023 Business Outlook. Politically, the Outlook said the cuts to project financing will be made worse if the Labour Party win the next election and follow through on proposals to backdate and raise the windfall tax--officially called the Energy Profits Levy (EPL)--remove most of the current tax allowances and restrict further exploration.
Windfall taxes imposed on North Sea oil and gas operators has seen their overall tax rate jump from 40% to 75% over the past 10 months. A similar windfall tax, rated at 45%, has been levied on offshore wind operators. Both taxes will remain in place until 2028. The Business Outlook showed that the heavy cuts in investment come at a time when the U.K.'s reliance on oil and gas is on the rise. The U.K. got 73% of its total energy from oil and gas in 2020, rising to 75% in 2021 and 76% last year.
"The windfall levies are driving investment out of the U.K.," said David Whitehouse, OEUK's chief executive. "The total tax rate for offshore oil and gas operators is now 75% -- three times that of conventional U.K. business. When prices fall, as is already happening, the 'windfalls' will disappear -- but the tax will remain because it is locked in place till at least 2028. That makes these taxes a deterrent for investors. The same issue applies to offshore wind operators who face a similar windfall levy. Together these levies risk turning the North Sea, which should be the bedrock of the U.K.'s energy security, into an unattractive place to invest. Some projects will proceed but not the number we need for our energy security and jobs."
On a positive note, the Outlook found that oil and gas companies and renewable energy specialists are "rapidly moving to embrace offshore wind and other low carbon technologies." It said that the companies expanding from oil and gas have plans to support the development of over 8 gigawatts (GW) of U.K. capacity, and up to £20 billion (US$24.6 billion) in capital investment, by 2030. "In total OEUK members, including companies solely focused on wind projects, have plans which support 13-GW and £30 billion (US$37 billion) respectively. Together, these could cumulatively power over 14 million homes in 2030."
At the end of last year, Industrial Info reported that there was a backlash to the U.K. windfall taxes, with leading oil and gas companies cutting investments. French company TotalEnergies SE (NYSE:TTE) (Courbevoie, France) said that it was cutting planned investment by £100 million (US$105 million)--around 25% of its planned spending. Fellow oil and gas majors Equinor (NYSE:EQNR) (Stavanger, Norway) and Shell plc (NYSE:SHEL) (London, England) also released statements warning that they were separately re-evaluating their U.K. investment plans. Shell's planned U.K. investment in energy projects amounts to £25 billion (US$30.8 billion).
Industrial Info is tracking Equinor's planned Rosebank project, one of the largest untapped oil and gas projects in the North Sea. It is estimated to contain up to 300 million barrels of recoverable oil, according to industry estimates. Planned commissioning is 2026 through to 2030, and it has the potential to account for 8% of the U.K.'s oil production. For additional information, see December 14, 2022, article - North Sea Oil & Gas Investments Cut After New Windfall Tax.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
Industry association Offshore Energies U.K. (OEUK) estimates that around 250 million barrels of oil equivalent (BOE) have been removed from company plans, whereas another 250 million BOE have been downgraded from "probable" projects (meaning a greater than 50% chance of progression) to "possible" (a less than 50% chance). This means that 500 million BOE of potential has slipped, equivalent to one year of output from the U.K. Continental Shelf owing to levels of investment risk, the OEUK found in its 2023 Business Outlook. Politically, the Outlook said the cuts to project financing will be made worse if the Labour Party win the next election and follow through on proposals to backdate and raise the windfall tax--officially called the Energy Profits Levy (EPL)--remove most of the current tax allowances and restrict further exploration.
Windfall taxes imposed on North Sea oil and gas operators has seen their overall tax rate jump from 40% to 75% over the past 10 months. A similar windfall tax, rated at 45%, has been levied on offshore wind operators. Both taxes will remain in place until 2028. The Business Outlook showed that the heavy cuts in investment come at a time when the U.K.'s reliance on oil and gas is on the rise. The U.K. got 73% of its total energy from oil and gas in 2020, rising to 75% in 2021 and 76% last year.
"The windfall levies are driving investment out of the U.K.," said David Whitehouse, OEUK's chief executive. "The total tax rate for offshore oil and gas operators is now 75% -- three times that of conventional U.K. business. When prices fall, as is already happening, the 'windfalls' will disappear -- but the tax will remain because it is locked in place till at least 2028. That makes these taxes a deterrent for investors. The same issue applies to offshore wind operators who face a similar windfall levy. Together these levies risk turning the North Sea, which should be the bedrock of the U.K.'s energy security, into an unattractive place to invest. Some projects will proceed but not the number we need for our energy security and jobs."
On a positive note, the Outlook found that oil and gas companies and renewable energy specialists are "rapidly moving to embrace offshore wind and other low carbon technologies." It said that the companies expanding from oil and gas have plans to support the development of over 8 gigawatts (GW) of U.K. capacity, and up to £20 billion (US$24.6 billion) in capital investment, by 2030. "In total OEUK members, including companies solely focused on wind projects, have plans which support 13-GW and £30 billion (US$37 billion) respectively. Together, these could cumulatively power over 14 million homes in 2030."
At the end of last year, Industrial Info reported that there was a backlash to the U.K. windfall taxes, with leading oil and gas companies cutting investments. French company TotalEnergies SE (NYSE:TTE) (Courbevoie, France) said that it was cutting planned investment by £100 million (US$105 million)--around 25% of its planned spending. Fellow oil and gas majors Equinor (NYSE:EQNR) (Stavanger, Norway) and Shell plc (NYSE:SHEL) (London, England) also released statements warning that they were separately re-evaluating their U.K. investment plans. Shell's planned U.K. investment in energy projects amounts to £25 billion (US$30.8 billion).
Industrial Info is tracking Equinor's planned Rosebank project, one of the largest untapped oil and gas projects in the North Sea. It is estimated to contain up to 300 million barrels of recoverable oil, according to industry estimates. Planned commissioning is 2026 through to 2030, and it has the potential to account for 8% of the U.K.'s oil production. For additional information, see December 14, 2022, article - North Sea Oil & Gas Investments Cut After New Windfall Tax.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
