The UK government is set to announce plans to ease restrictions on new oil and gas drilling in the North Sea as part of its North Sea Strategy. Chancellor Rachel Reeves is expected to present this strategy during her upcoming Budget speech, with further details provided shortly after by the Department for Energy Security and Net Zero.
The strategy is believed to include a relaxation of the current moratorium on new drilling by allowing for new areas to be classified as extensions of existing infrastructure. This concept was initially suggested at the Labour conference in September. However, the upcoming review will not directly address the decision regarding the controversial Rosebank field, which has faced opposition from former opposition leader Ed Miliband. The approval process for Rosebank is ongoing and separate from this strategy, although the broader relaxed regulations may influence its potential approval.
Traditionally, tiebacks have been used for small expansions into unlicensed seabed areas related to existing oil and gas fields. In contrast, Rosebank is a larger facility requiring its own dedicated infrastructure.
Additionally, there are discussions regarding the windfall tax of 78%, which is currently set to expire in 2030. The oil and gas sector has been advocating for modifications to this tax, claiming it has negatively impacted the industry’s viability. Investment levels are reportedly at a historic low, with operators preferring to invest in regions with more favorable taxation. Research from Robert Gordon University suggests that approximately 1,000 jobs are being lost monthly in the sector.
The industry views the approval of tiebacks as insufficient without some adjustments to taxation. One potential approach the government might consider is a “cap and floor” mechanism, which would activate if oil prices rise significantly, similar to levels seen after geopolitical events like the Russian invasion of Ukraine. The sector contends that recent declines in crude oil prices indicate that the extraordinary profits associated with high prices have diminished, warranting a reassessment of tax levels.
Source: https://www.bbc.com/news/articles/c0r9gyjkky0o?at_medium=RSS&at_campaign=rss