A new report estimates the introduction of a higher windfall tax on oil and gas firms could lead to the loss of 100,000 jobs industry jobs in the North Sea.
Investment bank Stifel had previously released analysis which estimated 100,000 jobs could be lost under a “worst-case scenario” which assumed the Labour party committing to no new drilling in the North Sea, which it has not yet done.
However this new report from the bank states losses could be incurred by raising the windfall tax to 78% and removing investment allowances, which the Labour party has proposed.
Stifel said this “accelerated decline scenario” could lead to £20bn lower capital investment in the North Sea by 2035, and a £30bn reduction in spending out to 2050.
Based on the Stifel analysis, which shows a strong correlation between North Sea spending and jobs, the report estimates the sector could lose around 100,000 jobs “possibly as quickly as by the next general election in 2029”.
But now, the firm said factoring in recent employment data led it to conclude that in the event of a rapid decline in investment spending, up to half of the current 200,000 jobs employed in the sector could be lost.
The loss of so many skilled workers would “harm the skills base needed for the UK’s energy transition due to the high transferability of skills between offshore oil and gas and floating wind, carbon capture, and hydrogen.
EPL a ‘multi-billion-pound’ paradox
Stifel said raising the Energy Profits Levy windfall tax represents a “multi-billion-pound paradox”.
The higher tax rate would initially generate £6.5bn in tax revenue up to 2029, but would lead to lower tax takings than the current regime from 2030 onwards.
“Over the remaining life of the North Sea, we estimate the UK loses c.£20bn of tax payments if the UK North Sea is forced into this accelerated rate of decline,” the report states.
Under this scenario, Stifel forecast that the UK would see its competitiveness for investment “dramatically eroded further”, with investment “almost completely ceasing” by the early 2030s.
UK North Sea not comparable to Norway
The Stifel report also expressed concern about comparisons made between the UK and Norwegian oil and gas tax regimes.
With productions costs in the UK North Sea nearly double that of Norway there is “less profit to tax”, Stifel said.
© BloombergWith the UK energy industry now making less post-tax cash to pay for continued investment due to the windfall tax, Stifel said the UK’s competitiveness has “already been damaged”.
“Making investments in the UK North Sea uneconomic or limiting the development of resources in the future is not consistent with the structure of the windfall tax and is the opposite of how Norway’s tax system works,” the report said.
Stifel also said there is “no longer a windfall to tax”, with UK gas prices down 95% compared to the peak seen in September 2022.
A ‘tax on investor confidence’
Stifel said the windfall tax represents a “tax on investor confidence” for any energy or infrastructure investment in the UK, including renewable energy.
According to the report, this loss of confidence in the UK is “damaging the North Sea industry more effectively than the windfall taxes themselves”.
Stifel pointed to Deltic Energy’s Pensacola prospect and Hartshead Resources’ Anning project as examples of two North Sea gas developments which have struggled to progress in recent months due to political and fiscal uncertainty surrounding the windfall tax.
© Supplied by PerencoRaising the windfall tax would also accelerate the pace of shutdown of platforms and bring forward the share of money the UK government will need to spend on decommissioning, Stifel said.
In the accelerated decline scenario, the report estimates the UK would be importing around 80% of its gas by 2030, up from around 55% currently.
With all sources of UK gas supply other than Norway being higher in carbon intensity than the UK’s own production, Stifel estimated the UK would create an additional 35 million tonnes of CO2 equivalent by 2035.
“Therefore, disincentivising investment in the UK North Sea through higher taxes or enforced decline in investment, and therefore reducing domestic gas production, could actually increase overall emissions from UK energy use,” Stifel said.
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