Picture this: It’s 2050, the UK relies on other countries for all its oil and gas supplies. Our associated emissions have skyrocketed because of our reliance on higher carbon imported energy and LNG.
Over 200,000 oil and gas jobs across Scotland and the UK have disintegrated, and the Treasury no longer benefits from the billions of pounds of tax paid by the offshore oil and gas sector.
The country has missed its net zero targets, and extra emissions have been offshored. We’ve also only scratched the surface of the country’s potential for renewables, for carbon capture and hydrogen production.
That’s because investors picked up their portfolios and funnelled their capital into more attractive basins elsewhere in the world. Now the UK must spend billions of pounds a year importing energy from those very same basins.
That picture might once have sounded far-fetched, but it could become reality if the UK loses the global race for energy investment.
The Office for Budget Responsibility has costed net zero at £1.4 trillion – 70% of which needs to come from the private sector. But the UK’s windfall taxes are driving those investors away.
The size of the prize is substantial. We can get to net zero without cutting corners – remaining responsible for our own production and emissions and making sure that our workforce has transitioned with us.
That would get us to net zero by 2050 – while also making the UK richer in resource and talent, supporting governments and society with more clean, secure, and affordable energy.
But that pathway hangs in the balance.
Our recent Business Outlook report found more than 90% of UK offshore oil and gas operators are cutting back investment in the North Sea because of the windfall tax and its associated challenges.
The total tax rate is now 75%, over three times that of other UK businesses and one of the highest in the world.
OEUK has repeatedly told the government that the new taxes risk driving investment out of the UK. It suggests that when prices fall, as they likely will, and the windfalls disappear – so should the tax. That warning seems to be falling flat.
© Supplied by OEUKThe same applies to offshore wind operators who face a similar windfall levy. Together these levies risk turning the North Sea, which should be the bedrock of the UK’s energy security, into a place that’s bad for business.
Our industry has shown what collaboration and long-term planning can achieve.
In 2021 we signed the North Sea Transition Deal, an agreement with the UK Government to help industry transform for the net zero future. We committed to that target. In return, the government committed to support domestic energy, a stable fiscal regime for the sector, and encourage continued investment.
We want to see both partners upholding those commitments.
Our report shows that 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.
The report points out that last year’s energy imports cost the UK £117 billion – more than double the 2021 total of £54 billion.
The more the UK relies on other countries for its energy, the greater the risk from global supply shocks.
There is every reason to believe the UK’s offshore sector will continue to be a bedrock of our economy and society for decades to come.
But for that to happen, there must be recognition that support for wind, hydrogen and carbon capture and storage must go hand in hand with support for UK oil and gas production.
We’ve powered the UK’s homes and businesses and fuelled the economy for 50 years. Now we’re ready to power the future too. But that depends on fostering a fair, balanced, and predictable fiscal landscape that stimulates growth instead of squandering it.
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