Reliance on gas imports rising due to UK’s energy policy with ‘high North Sea taxes and disincentives’
With the high windfall tax on oil and gas producers’ profits, the UK has become less attractive to some investors and companies, says INEOS’ Chemical Industries Association (CIA) President, who warns the government’s energy policy is holding back the country’s economy, as energy cost differences hit Britain’s businesses and consumers.
During the Chemical Industries Association annual dinner at the Grosvenor House Hotel, Tom Crotty, CIA President of INEOS, decided to take the UK government to task for – what he deemed as – the government’s lack of “a coherent energy policy and the disincentives to investment that are leading to totally uncompetitive energy prices and a growing reliance on imported gas.”
“Why are we in the UK stuck with a complete lack of energy policy,” asked Crotty. “How irresponsible is that? The rest of the world is encouraging local oil and gas production, while we destroy ours through high North Sea taxes and disincentives, making us totally reliant on overseas supplies and losing billions in potential revenue.”
INEOS, which runs the Forties Pipeline System (FPS) in the North Sea, was cited by Crotty as an example of the decline. 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. Crotty’s speech comes months after INEOS warned that the FPS, which links over 85 fields in the North Sea, saw oil flows decline by 40% over the last six years.
Crotty pointed out: “The Forties Pipeline System moves 40% of the UK’s oil from the North Sea through Grangemouth where it is processed for distribution throughout the UK. Oil flows through the system have declined by a dramatic 40%, meaning that the country is becoming ever more reliant on imported oil and gas.
“It puts UK consumers at the mercy of foreign producers and causes massive volatility in prices, pushing yet more people into fuel poverty. To give you a feel for the impact of this, if you look at yesterday’s energy prices, UK gas was priced at $14.6/mmBtu while the U.S. was at $3.1/mmBtu that’s a 5 times multiple. Electricity was €111/MWh in the UK but only €20 in the US, a 5.5 times multiple. On top of that, we have a carbon price at €79/t.”
The FPS has been forced to close a third of its processing capacity, potentially threatening hundreds of skilled jobs that depend on it. INEOS previously explained that the fundamental reason for the decline was the lack of investment in new fields caused by the UK government’s new windfall taxes. 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.
The chemical sector in the UK consists of 4,415 businesses, directly employing 151,000 people and supporting over 500,000 jobs in the UK economy. It adds significant value to the country, exporting goods worth over £54 billion or about $67.4 billion.
Recently, the UK set the wheels in motion to bring back annual oil and gas licensing opportunities, which would be contingent on specific tests to transition to net zero. The country expects to unlock more green investments with this controversial move, which has run into opposition from climate and environmental activists.
In addition, Britain is hoping to strengthen its energy security, reduce dependence on imports from overseas, and support lower carbon emissions while securing 200,000 jobs and billions in tax receipts. Those who disagree with the pursuit of more oil and gas claim that Britain needs to focus on deploying decentralized energy solutions to ease the cost-of-living crisis and reduce volatility in the long term.
Jonny Bairstow, Head of External Affairs at the Association for Decentralised Energy (ADE), said: “Instead of pledging to extract new oil and gas, what the UK needs more than ever is unwavering commitment to the deployment of energy efficiency measures, heat networks, flexibility upgrades and industrial decarbonization – diluting crucial net zero policies with the aim of reducing costs to consumers is exactly what we should not be doing.
“In a recent survey of our members, 75% of decentralized energy sector professionals and businesses said they had suffered a significant erosion of confidence in the wake of Prime Minister Rishi Sunak’s backpedaling on net zero policies in September. Such delays not only risk destabilizing our commitment to addressing climate change but will also lead to lost jobs and the erosion of business confidence in investing in the UK.”