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An industry body has indicated that the UK has the potential to meet half of its future oil and gas demand domestically under favorable business conditions, potentially minimizing reliance on more carbon-intensive imports. Offshore Energies UK (OEUK) projects that the nation is on track to produce 4 billion barrels of oil and gas equivalent from the 13 billion to 15 billion barrels estimated for use by the independent Climate Change Committee, which aligns with the UK’s net zero emissions target by 2050.
The North Sea has the capacity to yield an additional 2 billion to 3 billion barrels if investment is encouraged, which could add £150 billion in economic value beyond the £200 billion currently anticipated. OEUK’s annual business outlook report, released on Tuesday, emphasizes the importance of prioritizing self-sufficiency over import dependency as the UK government consults on the future fiscal, regulatory, and environmental policies for the North Sea.
David Whitehouse, OEUK’s chief executive, emphasized the necessity for the UK to focus on maximizing its own oil and gas production, noting the requirement for new projects, mostly stemming from existing licensed areas, to achieve this.
The organization is advocating for a reduction in the windfall tax to align with current lower energy prices and stimulate investment in costly North Sea drilling operations. From 2030 onward, the oil and gas sector is expected to revert to paying only permanent taxes, currently around 40%, with automatic increases when wholesale prices reach extraordinary levels.
The windfall tax on oil and gas profits was implemented in 2022 following the spike in energy prices after Russia’s invasion of Ukraine. Last year, the government raised the levy to 38%, resulting in a total tax rate of 78% for producers through 2030, while removing the primary investment allowance. A spokesperson for the body stated that as windfall prices decrease, so should the associated taxes, particularly as energy prices have returned to pre-invasion levels.
The government, recognizing prior adjustments to the oil and gas fiscal regime, aims to provide investors with more consistency regarding future taxes. The report draws attention to the “historic low rates of return” of minus 1% for the year leading up to June 2024, attributed to reduced prices and production coupled with high taxation.
OEUK has urged the government to eliminate imports of liquefied natural gas (LNG) from its consumption mix by bolstering domestic production. Last year, 17% of the UK’s gas imports originated from US LNG, which exhibits a carbon intensity four times that of domestic gas.
The government has stated that it will not approve new oil and gas licenses but will consider additional production surrounding existing facilities. However, new licenses would be necessary to maximize output potential, an insider noted.
Tessa Khan, executive director of Uplift, an organization advocating for the phase-out of fossil fuels, criticized the oil and gas sector for promoting unrealistic scenarios. She argued that these production levels are feasible only with further tax incentives or high prices that would adversely affect individuals struggling to pay their energy bills. Khan warned that increased domestic production would unnecessarily prolong reliance on an outdated and costly energy source.
Rachel Reeves, the chancellor, assured the Sun on Sunday that development of the Rosebank and Jackdaw oil and gas fields will continue despite facing legal challenges on environmental grounds.
