Higher UK petroleum taxes jeopardize investment and government revenues, consultant claims
Offshore staff
LONDON — Global wealth management/investment banking specialist Stifel is questioning the logic of further increases in the UK’s windfall tax on petroleum activities pledged by both main parties as the next general election draws near.
Oil & Gas analyst Chris Wheaton said the planned measures, especially through the removal of investment allowances, would have the paradoxical impact of “substantially lower investment and, therefore, lower tax income for the UK.”
While tax receipts might be higher until 2029, thereafter they would be much lower.
“Our analysis indicates that an increase in the windfall tax to 78% and removal of investment allowances would generate only an extra c.£6.5 billion [$8.22 billion] tax by 2029, not the £11 billion [$13.91 billion] that the proposed higher taxes are supposed to generate," Wheaton said. “From 2030 onward, annual tax take under this potential higher tax regime would be substantially lower than under the current tax rates, as production volumes collapse due to the loss of investment.”
The higher tax take would render UK offshore oil and gas investment projects uneconomic, Wheaton added, with North Sea production volumes about 50% lower by the end of the decade.
Loss of investment would also lead to the UK North Sea potentially losing 100,000 of the current c.200,000 jobs directly or indirectly employed by the industry, a situation that might arise by the time of the next general election in 2029.
“This would harm the skills base needed for the energy transition,” Wheaton said. “For example, the transferable skills between offshore energy, and floating wind farms, carbon capture and hydrogen production.
“Energy security is national security; the UK would lose both, with the decline in North Sea gas production leaving the UK importing 80% of its gas demand by 2030 (from c.55% now). Even under the most optimistic renewable energy and electrification rollout scenarios, the UK still needs up to 20 GW of carbon-abated gas-fired power in 2050 due to intermittent generation from renewables, even if the investments were available to triple offshore wind generation capacity from the current planned levels of 50 GW by the mid-2030s.
“The UK would be left competing for imports of liquefied natural gas in a volatile and uncertain global gas market.”
And without the UK North Sea’s production, total CO2 emissions from the UK's energy mix would be higher, with Britain merely exporting its carbon emissions (along with jobs and investment) to energy producers such as Norway and the US, he continued.
“While shutting down the North Sea energy industry would make the UK's own emissions look better, this is merely because higher emissions are being produced elsewhere. The UK would be importing more energy and at a higher carbon intensity, which would increase emissions from the UK's energy supply chain.”
05.18.2024
