David Whitehouse, Chief Executive Officer at OEUK, the leading trade body for the integrating offshore energy sector

I listened to the Chancellor’s Spring Budget statement with anticipation but was left disappointed at the lack of recognition for oil and gas as the key pillar in UK energy security and an integrated energy system. While we were pleased that Government responded to our requests for action on carbon capture and storage, the budget was silent on the urgent need to restore investor confidence in our critical sector. Post budget we saw a number of offshore energy infrastructure companies, including Orstead, reflect on what was lacking in the budget to drive investment and accelerate projects. An opportunity missed.

Our members recognise that the cost of living crisis has resulted in desperately difficult times over the past year for people and businesses across the UK. When people face such widespread hardship, it is right for all sectors to play their part. Our members are doing that with almost £11 billion expected to be paid in corporation tax and additional windfall taxes for financial year 2022/23.  Our ask of the Government is fair and reasonable: once prices return to normal the windfall tax should go.

The UK Government’s upcoming energy day, highlighted in a recent Bloomberg article, is an excellent occasion to confirm a positive direction for the UK’s future energy and economic prosperity. We continue to strongly encourage the Government to seize this opportunity to support our energy security, our jobs and a successful energy transition by committing to make the UK an attractive destination for private investment.

We know that today oil and gas provides 75% of the UK’s energy and maintaining reliable energy sources will be critical to support the growth of new energies like hydrogen and supercharging the next generation of offshore wind. We are proud to make a huge contribution to the economy and society. In 2022/23 alone we will add at least £24 billion to the UK economy. We provide 215,000 good, skilled jobs across the length and breadth of the UK. As events in Ukraine have shown, it is critical that we support our homegrown oil and gas sector to ensure our energy security. This is the platform for a successful energy transition to meet our climate goals.

Our members are the same companies that are investing to accelerate our expansion into renewable sources. The homegrown expertise of our people is driving innovation in cleaner energy production. We are determined to create a sustainable future.

As we build that future there is no simple choice between oil and gas on the one hand and renewables on the other. The reality is that to keep the lights on and grow our economy, we need both. By the mid 20DW30s, oil and gas will still provide for 50% of our energy needs. By investing in homegrown energy, we avoid costlier, less secure and higher imports while supporting the infrastructure we need to make cleaner, more affordable energy in the UK, for the UK.

The windfall tax levied last year, now means UK offshore oil and gas operators are paying a total tax rate of 75% and low carbon electricity generators 70% - two of the highest rates in the world and three times the rate of conventional UK businesses. This level of tax discourages investment into the UK and undermines our companies, our jobs and our energy security.

Today, we see that the oil and gas industry in the UK is struggling to attract necessary investment. Over 90% of UK producers say they have been negatively impacted by the UK Government windfall tax and are scaling down their plans for the North Sea. Many are looking to invest elsewhere with an impact on energy security and jobs. With a 75% tax rate and oil prices returning to more normal levels, key projects will not progress and jobs will be lost. If we undermine our sector, we undermine our ability to drive a homegrown energy transition.

A successful energy transition will require an attractive and stable fiscal environment. Our members have the strength, people and resources to be key investors in the energy transition. It is estimated that over £1.3 trillion pounds of investment will be required to decarbonise the UK economy. That is a staggering amount of investment required over the coming decades. The bulk of that investment will come from private companies, private companies that have choices on where to invest. Across the world, in Europe, Asia and critically the USA, policy is in place to attract the investment necessary. We are in a global race for energy investment and the UK is falling behind. The Government must continue to engage with the sector. We must address this.

The Chancellor’s recognition that carbon capture and storage is a critical technology, in which the UK has a real opportunity to become a global leader, is an important step forward. A thriving CCS sector requires supportive government policy, a stable fiscal regime and to move at pace to unlock first mover advantage.

While the Budget didn’t remove the obstacles faced by companies to enable that investment across the entire energy landscape, our collaborative industry stands ready to work with Government to keep the nation’s lights on and homes warm in our drive to safeguard the UK’s energy security and reach net zero. We need urgent action.

KeyFacts Energy Industry Directory: Offshore Energies UK