Offshore staff
LONDON – More countries could in the future require oil and gas producers to pay a carbon tax or participate in an emissions trading scheme (ETS), according to Wood Mackenzie, as governments seek to achieve decarbonization targets.
This could have a major impact on the upstream sector, impacting asset values and the industry’s economics.
Graham Kellas, senior vice president, global fiscal research, said: “Governments have two options for imposing carbon charges on upstream operations. They can either levy a carbon tax, which is a fixed tax rate applied to all carbon dioxide emissions, or implement an ETS.
“Under both schemes, the financial impact on specific projects can potentially be mitigated by an emissions allowance.”
There are currently more than 60 carbon charge regimes in existence, although few affect major oil and gas producing areas at a rate above $20 per metric ton.
Norway is the main exception, having imposed a tax on CO2 from upstream operations since 1991. It is also a member of the EU’s ETS scheme, in which the UK also participates.
Last year, Canada’s government declared that its carbon tax rate would rise to the equivalent of around $135/metric ton by 2030. President Biden’s green agenda also makes carbon charges more likely for US upstream operations.
Norway’s government now proposes a much higher overall carbon tax rate on upstream oil and gas operations, even though operators on the Norwegian continental shelf already pay the world’s highest carbon taxes.
Kyrah McKenzie of WoodMac’s upstream research team said: “The proposals would see the combined Norway CO2 tax and EU ETS price reach $262 per metric ton by 2030 – nearly a three-fold increase compared to today’s price.
“The changes will increase carbon taxes to almost $2 billion per annum by 2030, and would make up around $2 per barrel of opex, similar to transportation tariffs. This could increase up to $10 per boe at more mature fields.”
However, Norway’s high tax rates, against which carbon taxes are deductible, would help offset the rise, and the country’s low carbon intensity also reduces exposure.
“As a result, the implications for asset and company value are minimal,” McKenzie said. “We believe asset valuations would fall by about 1% ($1.4 billion), though company value could fall by up to 5% for those with more mature, high-carbon portfolios.”
The measure could bring forward cessation of production decisions for some Norwegian fields, although WoodMac research indicates that less than 50 MMboe would end up left in the ground.
McKenzie added: “Our analysis shows that the fiscal treatment of carbon taxes is arguably more important than pricing. A $262 per tonne carbon price in other parts of the world would have more serious implications.”
04/01/2021
