At its peak in the early 2000s, the oil and gas industry in the North Sea, centered in Aberdeen, delivered more than 2.7 million barrels of oil per day – representing 3.6% of global production. The North Sea gas fields provided the equivalent of another 1.8 million barrels on top of that.
While production has fallen sharply since then, with less than a million barrels of crude oil being pumped per day, the UK oil and gas industry is Continues to employ 25,000 in and around Aberdeen and another 200,000 across the UK.
More importantly, with tens of millions of petrol and diesel cars on the road and 85% of homes relying on gas for heat, oil and gas still meet around three-quarters of all UK energy needs.
Much better pumping our own hydrocarbons than relying on imports In an increasingly uncertain world.
Renewables are clearly important – they powered 36% of UK electricity generation last year, up from 11% a decade ago.
But oil remains essential for transportation and a range of industrial processes. Gas turbines generated 40 per cent of the electricity used in the UK last year, up from 30 per cent in 2012.
Even the Committee on Climate Change, an advisory body set up by the government, acknowledges that oil and gas will still account for half of the UK’s energy use in the late 2000s. At a time when energy security is paramount, it makes economic and geostrategic sense to make the most of our resources.
In addition, using North Sea energy involves far less carbon emissions than doubling the UK’s sharply increasing reliance on gas drilled in the US and Qatar.
This gas is filtered, pumped into huge diesel-powered vessels and then ‘regasified’ after traveling thousands of miles to UK ports – a series of extremely energy-intensive operations.
Environmentalists ignore such realities when they block roads and destroy high-profile sporting events, crying out for an immediate halt to North Sea production.
For all these reasons, the government’s unexpected tax on UK oil and gas producers Extremely counterproductive. Just over a year ago, when other UK companies paid a 19 per cent corporation tax, North Sea producers were charged 30 per cent plus a 10 per cent “supplementary tax” on top.
Since then, taxes on North Sea profits have risen from 40 per cent to 65 per cent and now 75 per cent – thanks to then-chancellor Rishi Sunak and his successor Jeremy Hunt. This unexpected tax now also applies not until 2025, as originally announced, but until 2028.
The Tories are keen to show off their green credentials – despite evidence even from the government’s net zero fan that the ongoing production of the North Sea will be environmentally beneficial for at least another decade and more.
Ministers are also under the impression that this unexpected tax will generate a lot of revenue, helping to bridge the huge post-lockdown gap in our national accounts.
Figures released last week showed that while government borrowing was £13.2bn less than expected over the past 12 months, the country still spent £139bn more than it collected during 2022/23 – a deficit of £18bn. pounds sterling over the previous year.
The UK, according to the Office for Budget Responsibility, faces a triple-digit deficit for several years to come. This highlights not too high taxes, but pro-growth policies to boost GDP, and make debt more manageable by expanding our economy.
Instead, Sunak and Hunt enforced The heaviest tax burden in 70 years – And who better for taxation than the bad oil and gas producers in the North Sea?
This windfall tax would raise the Conservative Party on average £8.6bn a year between now and 2028, the balance sheet office says, up from £0.8bn on average over each of the six years to 2021. So, according to By official estimates, the tax burden on this single industry has risen to nearly eleven times, despite the starkly evident national interest in making sure that North Sea production is preserved.
Yes, crude oil prices skyrocketed after Putin invaded Ukraine last February, peaking at $138 a barrel the following month. During 2022 as a whole, the price of oil averaged $101 – 40 percent in 2021.
But the price of oil hasn’t gone up 11-fold, and the profits of UK energy companies certainly haven’t gone up 11– how do you justify that tax increase?
Some major multinational oil companies still operate in the North Sea Really made big profits Global energy prices fell last spring and summer.
But it was largely derived from operations outside the UK, in parts of the world with much lower extraction costs.
In any case, North Sea production is now dominated by small independent operators based in the UK.
They lack the huge budgets of global energy companies, so they are struggling to take advantage of tax breaks that Chancellor Hunt claims will lead to increased investment.
On the contrary, as I learned while visiting Aberdeen a few days ago, nine out of ten local operators have put their investment plans on hold – and is it any wonder?
Imagine taking on tens of millions of pounds of debt to launch a complex offshore drilling project, then nearly doubling the tax rate – at a time when the cost of labor and materials is also escalating.
Harbor Energy, among the UK’s largest independent companies, generated just £6.4m in after-tax profits last year – after setting aside £1.2bn (yes, billion!) for so-called ‘energy dividend tax’.
Beyond the cash spin, Harbor just announced 350 job losses onshore, mostly in Aberdeen. Meanwhile, the UK oil and gas industry as a whole is dealing with the worst strikes in a generation among offshore workers.
North Sea operators have been pressuring the Treasury to set a “minimum price” – so this tax rate only applies when crude oil is above a certain level. They have been vehemently rejected.
But Hunt needs to understand that unless the 75 per cent tax rate is lowered, North Sea production will decline very dramatically – and possibly vanish altogether.
That would make the Balance Sheet Office’s spiraling oil and gas revenue forecast nonsense and could cost the Treasury money.
If this really is a “windfall tax”, chancellor, why is it still in effect now – when the price of Brent crude pumped from British waters is 20% lower than it was before Putin invaded Ukraine?
And why is this absurd tax rate on so-called excess profits extended until 2028 – when no one knows where the price of oil will go?