Britain waives oil and gas windfall tax if prices fall far enough Ship’s crew

Reuters

LONDON, June 9 (Reuters) – Britain’s random tax on oil and gas producers will not be levied if prices fall below certain levels for six consecutive months, the Treasury Department said on Friday. The government hopes this move will improve energy security.

The Energy Profit Levy (EPL) was introduced in May last year following a surge in energy prices following the Russian invasion of Ukraine. However, the industry warned that high tax levels could lead to reduced production in the long term.

The EPL rate was raised from the original 25% to 35% in November, raising the overall tax burden to 75%. So far, £2.8 billion ($3.51 billion) has been collected, the Treasury said.

Friday’s changes would eliminate the windfall tax and reduce the tax burden to 40% if average oil and gas prices are at or below $71.40 a barrel for oil and 0.54 pounds a barrel for two consecutive quarters fall for gas.

However, the government said independent price forecasts by the Office for Budget Responsibility indicate the price floor mechanism is unlikely to be triggered before the windfall tax’s planned end date of March 2028.

Benchmark Brent crude oil prices (LCOc1) have fallen to around US$75 per barrel now, from a peak of around US$139 per barrel in March 2022 in the wake of the Russian invasion of Ukraine, and have been down so far this year in traded in a range between approximately $70 and $89 per barrel.

UK wholesale gas prices jumped to record highs of around £6 a therm in March 2022, but the benchmark front month price for UK gas TRGBNBPMc1 is currently around £0.63. According to data from Refinitiv Eikon, the price last traded below £0.54 in April 2021.

Friday’s move comes ahead of a final $5 billion investment decision by Equinor EQNR.OL rose bank Oil field scheduled for the first half of the year. An Equinor spokesman said the government’s decision had “no direct consequences for us”.

Oil and gas producers in the British North Sea, including Total EnergiesTEF.PA and HarborHBR.L said the levy would result in investment in the basin being cut.

TotalEnergies and Shell broadly welcomed the government’s announcement on Friday and said they were analyzing details.

“This is a step in the right direction, but many more steps need to be taken to restore confidence in our sector,” said David Whitehouse, CEO of the North Sea sector’s main trade body Offshore Energies UK (OEUK).

From producing about 4.4 million barrels of oil equivalent per day (boed) – more than OPEC heavyweight Iraq – at the start of the new millennium, Britain is now producing about 1.3 million barrels of oil equivalent per day (boed) and is on the way to drop to less than 200,000 barrels per day by 2050, says the NSTA sector regulator.

Britain was a net oil exporter as recently as the 2000s, but now relies on both oil and gas imports.

($1 = 0.7960 pounds)

(Additional reporting by Sarah Young, William James, Nora Buli, America Hernandez, Ron Bousso; Editing by Kate Holton, David Goodman and Jan Harvey)

(c) Copyright Thomson Reuters 2023.

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