Britain's future energy security still hangs in the balance despite the latest announcements from the government on “powering Britain from Britain”, Offshore Energies UK's Chief Executive said today.
David Whitehouse welcomed the government ambition on promoting home insulation, offshore wind, mass hydrogen production, and carbon capture and storage. He said the measures, announced in the government’s ‘energy day’, were long overdue.
However, he said the offshore energy industry was disappointed at the government’s failure to acknowledge the damage being caused to UK oil and gas production by the windfall tax. It was first imposed last year when global energy prices surged in the wake of Russia's invasion of Ukraine.
Since then, the windfall tax has been increased to 75% and locked in place until 2028 - but global oil and gas prices have significantly decreased. This means the windfall tax could be in place when there is no longer a windfall. Several key operators have already announced plans to cut investment in the North Sea and other UK waters.
Offshore Energies UK has been calling for a ‘trigger price’ for the windfall tax meaning the tax would only apply when oil or gas prices are high, and a windfall profit was being earned.
The prospect of the tax applying even when there is no windfall profit being earned, with no mitigation, has proven a massive deterrent to investment in the UK's North Sea with 90% of operators confirming that they are cutting back on investments.
The UK consumes 77 billion cubic metres of gas a year (1,150 cubic metres per person), plus 61 million tonnes of oil (just under a tonne per person). It already has to import about half of this energy – and last year’s price rises saw the cost of those imports soar from £54 billion in 2021 to £117 billion in 2022. Any reduction in UK production would risk even higher future import bills.
David Whitehouse, OEUK’s chief executive, said: “The future must be powered by lower carbon energies such as offshore wind, hydrogen and solar so we are pleased with the measures to support them announced today. Reducing energy use by insulating homes is essential and carbon capture and storage will be vital to reaching net zero, especially as it will underpin the growth of the mass hydrogen production industry.
“However, building these future industries will take many years during which we will still need gas and oil. Investing in UK oil and gas production now is what will make that future possible. We need to build investors’ confidence – but these taxes are undermining our energy security and a successful home-grown energy transition.
“Oil and gas still supply 76% of the UK’s total energy so, while we build that future, there is no simple choice between oil and gas on the one hand and renewables on the other.
“The reality is that to keep the lights on and grow our economy, we need both. By the mid-2030s, according to the Climate Change Committee, oil and gas will still provide half our energy needs. We should be aiming to get as much as possible of that energy from our own resources – meaning the North Sea.
“The windfall taxes will prevent that from happening. They are driving investment out of the UK. The total tax rate for offshore oil and gas operators is now 75% – three times that of conventional UK 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 major deterrent for investors. The same issue applies to offshore wind operators who face a similar windfall tax. Together these taxes risk turning the North Sea, which should be the bedrock of the UK’s energy security, into an unattractive place to invest.
“The Office for Budget Responsibility costed net zero at £1.4 trillion in 2020 prices – of which more than £1 trillion will have to come from the private sector. We need fiscal policies that attract those investors to the UK– rather than driving them away.”
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