Britain’s windfall tax on oil and gas producers will not be applied if prices drop to certain levels for six months in a row, the finance ministry said on Friday, in a move the government hopes will boost energy security.
The energy profit levy (EPL) was introduced in May last year, two months after a jump in energy prices resulting from Russia’s invasion of Ukraine, but the industry has warned that the high tax level could lead to reduced output in the long term.
The EPL was raised from its initial 25 per cent rate to 35 per cent in November, bringing the overall tax burden to 75 per cent.
With Friday’s changes the windfall tax would fall away, reducing the tax burden to 40 per cent, if average oil and gas prices fall to or below $71.40 a barrel for oil and 0.54 pounds ($0.6784) per therm for gas in two consecutive quarters.
However, the government said independent price forecasts by the Office for Budget Responsibility suggest the price floor mechanism is unlikely to be triggered before the windfall tax’s planned end date in March 2028.
Benchmark Brent crude oil prices have fallen from a March 2022 spike of about $139 a barrel in the wake of Russia’s invasion of Ukraine to about $75 a barrel and have traded in a range between about $70 and $89 a barrel so far this year.
UK North Sea oil and gas producers including TotalEnergies (TTEF.PA) and Harbour (HBR.L) have said the levy would result in them cutting investment in the basin.
From output of about 4.4 million barrels of oil equivalent per day (boed) – more than OPEC heavyweight Iraq – at the start of the new millenium, Britain now produces about 1.3 million boed and is on course for a decline to less than 200,000 boed by 2050, the NSTA sector regulator says.
Britain was a net exporter of oil as recently as the 2000s, but now depends on both oil and gas imports.