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The UK could produce half of its projected demand for oil and gas domestically under the “right business conditions”, reducing an increasing reliance on more carbon-intensive imports, an industry body has said.
Offshore Energies UK said the country is on track to produce 4bn barrels of oil and gas equivalent of the 13bn-15bn forecast for use by the independent Climate Change Committee, in line with the UK’s 2050 net zero emissions pathway.
But the North Sea could produce another 2bn-3bn barrels if companies were encouraged to invest, adding £150bn of economic value over the £200bn expected under current plans.
OEUK’s forecast, released in its annual business outlook on Tuesday, lays out the industry’s case for prioritising self-sufficiency over import dependency as the UK government consults on future fiscal, regulatory and environmental regimes for the North Sea.
“The UK needs oil and gas — and we should be focused on producing as much of that ourselves,” said David Whitehouse, OEUK chief executive. “It would require new projects to meet that target, but the majority of those would come from existing licensed areas.”
OEUK wants an immediate reduction in the windfall tax to reflect lower prices and encourage investment in expensive North Sea drilling operations, said one person familiar with the body’s thinking.
From 2030, the oil and gas sector will return to paying only permanent taxes, currently set at roughly 40 per cent, but would automatically contribute more if wholesale prices rose to unusual levels.
The levy on oil and gas profits was introduced in 2022 in response to soaring energy prices after Russia’s invasion of Ukraine.
Last year, the government increased the levy to 38 per cent, bringing headline taxes for producers to 78 per cent through 2030, while also removing the main investment allowance.
“When windfall prices fall away, so should taxes,” the person said, noting energy prices had fallen to pre-invasion levels.
The government, acknowledging previous changes to the oil and gas fiscal regime, hopes to give more certainty to investors over future taxes.
The report highlights “historic low rates of return” of minus 1 per cent for the year to June 2024, owing to lower prices and output, alongside high taxation.
OEUK also called on the government to “eliminate” imports of liquefied natural gas from the UK’s consumption mix by supporting more domestic production.
About 17 per cent of the UK’s gas imports were last year sourced from US LNG, which has a carbon intensity four times that of domestic gas.
The government has said it will not permit new oil and gas licenses but would consider additional production around existing facilities. New licenses, however, would be needed to raise output to its full potential, the person added.
Tessa Khan, executive director of Uplift, an organisation that supports the phase out of fossil fuels, accused the oil and gas industry of “peddling a fantasy”.
“These production figures are only possible if the industry is handed yet more tax breaks, or prices are so high that it punishes ordinary people who already can’t afford their energy bills,” she said.
New domestic output would “lock us into an outdated, expensive source of energy for far longer than is necessary”, she added.
Rachel Reeves, chancellor, told the Sun on Sunday that the development of Rosebank and Jackdaw oil and gasfields would go ahead, despite legal challenges on environmental grounds.
