North Sea sector confident Sunak will decide against windfall tax

North Sea power corporations consider they’ve a tacit settlement with UK ministers that in the event that they step up funding in oil and gasfields they are going to be spared a windfall tax within the chancellor’s Spring Statement on Wednesday.

Shell introduced final week that it has resubmitted plans for approval of the massive Jackdaw North Sea gasfield, whereas it has left open the potential of reviving curiosity within the Cambo oilfield off Shetland.

Chancellor Rishi Sunak is beneath heavy stress from the Labour get together to levy a windfall tax on the North Sea sector after hovering power costs boosted corporations’ income, however he has constantly rejected the thought, warning this may undercut funding.

Government officers don’t anticipate Sunak to levy a windfall tax in his Spring Statement, however the chancellor needs the power corporations to sharply step up funding in oil, fuel and renewables.

One North Sea govt mentioned enterprise secretary Kwasi Kwarteng had, earlier than Russia’s invasion of Ukraine, talked of a “quid pro quo” with the trade, the place the sector was spared harsher taxes in alternate for extra funding.

“Now they are even more desperate for companies to invest,” the manager mentioned. Kwarteng is against a windfall tax, arguing that Britain wanted the power corporations to take a position to scale back reliance on imported energy.

Kwarteng’s allies insisted that he had solely referred to a “quid pro quo” in relation to granting exploration licences to the businesses in the event that they agreed to make their operations extra environmentally pleasant.

On Tuesday, a senior enterprise determine mentioned he thought the chancellor had determined to not impose a windfall tax on the sector or improve taxes on the North Sea, however wanted to point out “a return”.

He mentioned Sunak anticipated the businesses to pledge to extend funding in new drilling and higher home manufacturing of oil to extend power safety. “I expect the two to be linked,” he mentioned.

Making life tougher for Sunak, Lord John Browne, chief govt of BP for 12 years till 2007, mentioned a windfall tax was “justifiable” as a result of the power sources have been owned by the nation and extracted by corporations beneath licence.

Rachel Reeves, shadow chancellor, is predicted to pillory Sunak if he fails to introduce a windfall tax. Bernard Looney, BP’s chief govt, final yr mentioned rising power costs had turned his firm into “a cash machine”.

Prime minister Boris Johnson earlier this month held a gathering with leaders of the UK’s offshore oil and fuel trade, throughout which he “reaffirmed his steadfast commitment” to the sector. Downing Street mentioned it remained dedicated to its 2050 web zero carbon goal.

Shell signalled final December that it was withdrawing from the Cambo area. At the time Britain had simply hosted the COP26 local weather change convention and the political temper had turned strongly in opposition to fossil fuels.

But since then crude oil costs have risen from beneath $70 a barrel to over $100, whereas the Russian invasion of Ukraine has reawakened curiosity in Britain turning into extra self-sufficient in hydrocarbons.

Siccar Point Energy, the lead accomplice in Cambo, has utilized to the UK’s oil and fuel regulator for an extension to its licence overlaying the undertaking, which is because of expire on the finish of March.

People conversant in the method described the licence utility as a “formality” and mentioned it didn’t mandatory imply the oil undertaking was positively being revived. The BBC reported Shell was reconsidering its place.

Siccar Point Energy, which is backed by the personal fairness teams Blackstone and Bluewater, put the Cambo undertaking on maintain final yr after its junior accomplice within the scheme, Shell, indicated it not meant to commit the funding required to deliver the reservoir into manufacturing.

Siccar Point Energy declined to remark. Shell mentioned its place remained unchanged since December when it mentioned the financial case for funding within the undertaking was not sturdy sufficient, significantly given the potential for delays within the occasion of political and social opposition.

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