INEOS: Windfall taxes and mixed signals from politicians tearing down UK’s oil & gas industry
After the UK government took steps to raise a windfall tax on oil and gas producers’ profits, the warnings about this move have not stopped coming, as many companies continue to mull over downgrading their UK portfolio or even exiting the North Sea. However, the high-tax environment is not the only obstacle standing in the North Sea oil and gas industry’s way, according to INEOS’ Founder and Chairman, who highlights that mixed and negative signals from politicians also serve to wreak havoc on the future of the industry, impeding investments needed to ensure energy security.
INEOS warns that its Forties Pipeline System (FPS), which links over 85 fields in the North Sea, has seen oil flows decline by 40% over the last six years. The FPS, which moves 40% of Britain’s oil from the North Sea through Grangemouth where it is processed for distribution throughout the UK, has been forced to close a third of its processing capacity, potentially threatening hundreds of skilled jobs that depend on it. This decline is believed to be the result of a combination of windfall taxes and negative signals from politicians on the future of the North Sea.
Sir Jim Ratcliffe, INEOS Founder and Chairman, commented: “The UK’s total lack of an energy policy is completely irresponsible. Whilst the rest of the world is encouraging local oil and gas production, the UK seems intent on destroying it through high taxes and disincentives, making us totally reliant on overseas supplies and losing billions in potential revenue.”
Furthermore, INEOS’ Founder and Chairman claims that the 40% decline is “bad news” for the UK, as it indicates that the country is becoming ever more reliant on imported oil and gas, putting consumers at the mercy of foreign producers and causing massive volatility in prices, pushing yet more people into fuel poverty. Ratcliffe is adamant that UK gas will be needed as “a key feedstock” for future hydrogen production. The decline in oil flows also means that oil and gas revenues are leaving the UK and going into the coffers of other countries.
“The rest of the world has understood that we will need oil and gas for the next 30 years and is incentivizing production through sensible taxation. The UK is doing the opposite and seems intent on rapidly destroying North Sea production through a mixture of negative comments and punitive windfall taxes,” concluded Ratcliffe.
INEOS underlines that the fundamental reason for this decline is the lack of investment in new fields caused by the UK government’s new windfall taxes which are now “so high there is no cash left for new production.” The problem is exacerbated by the mixed messages coming from UK politicians which further undermine companies’ willingness to invest in the North Sea. This is in line with INEOS Founder and Chairman’s previous claims that windfall tax on oil and gas producers’ profits in the North Sea would lead to a collapse in investment in the basin.
INEOS FPS, which operates the Unity platform located in Block 21/9 of the North Sea in 122 meters of water, is interested in investing up to £1 billion to upgrade the network to ensure it is fit for purpose until the 2040s, but this is dependent on the basin remaining a viable oil and gas hub. The INEOS Forties Pipeline System carries 575,000 barrels per day from 85 fields over 169 kilometers to its Kinneil processing facility at Grangemouth.
While the windfall tax hike is casting a shadow over the once-thriving North Sea basin, the Labour Party is pushing for the ramp-up of renewables and a potential ban on new oil and gas developments in the North Sea. In contrast, the most prominent members of the Conservative Party, such as Britain’s current Prime Minister, Rishi Sunak, are pursuing a balancing act by advocating the deployment of low-carbon and green policies alongside more oil and gas. They use energy security concerns to justify this approach.
Sunak’s recent changes in net-zero policy have come under fire from multiple sides, as they push back some of the UK’s climate targets. Over 400 NGOs and businesses wrote in a letter to the UK’s Prime Minister that weakening climate policies would be the historic mistake of his premiership, leaving a lasting impact on the UK economy, climate, and his legacy.
The Association for Decentralised Energy (ADE) and its members are also among those said to be “deeply concerned” by the British government’s delays in the implementation of – what they see as – crucial green and net-zero policies. The ADE went a step further and conducted a poll about the UK’s diluted net-zero policies with results showing that 75% of decentralized energy sector professionals and businesses have voiced a significant erosion of confidence in the wake of the Prime Minister’s announcement.
Despite the backlash, Sunak is adamant that the country will still reach net-zero by 2050, albeit following a “fairer” path towards this target to ease the financial burden on British families, as the “over-delivery” on reducing emissions provides space to take “a more pragmatic, proportionate, and realistic approach” to reaching net-zero while maintaining all international commitments.