Member Info for Dumbly

OCTOBER 12, 2022 10:26 AM EDT
"Russia’s President Vladimir Putin said any energy infrastructure in the world is at risk after the explosions on the Nord Stream gas pipelines."
Irrespective of "whodidit", the above is all the more reason for countries to do all they can for their own energy security, which in turn for the UK means to do all they can to exploit the hydrocarbon resources of the North Sea, which in turn means to do all to encourage private investment in the NS.

Jefferies raises EnQuest price target to 40 (33) pence - 'buy'

Let’s see:
https://uk.finance.yahoo.com/news/rees-mogg-oil-gas-licensing-230100977.html

Jan, agreed, most of the population don't understand the energy crisis. As Art Berman says, "Energy is the Economy". And the Tories and Labour agree that economic growth is the priority. Maybe a "National Debate" is needed to explain. Then again, maybe for the politicians it is convenient people don't understand as this way the narrative can be twisted to suit the political objective of the moment. So, Jan, yeah, maybe a few blackouts is what is needed to focus minds.
Back on the windfall tax aspect, if the UK prefers to drive away NS investors and, for example, instead secure long-term gas supply contracts with others, such Norway, then jobs will be exported and tax revenue on this employment and the gas supply gifted to other governments.
As all these pieces, economic growth, energy security, increased tax income, fit together, maybe Truss/KK have a plan to to explain all this to the public and do something in the UK's interest. Hope springs eternal...

With the likelihood being of a Labour government within two years, and the Labour party stating as a core part of their message that they would put additional windfall taxes on oil and gas produces in the North Sea, who would make long-term investments in the UK NS?
The way the fossil fuel industry has been demonized, it will be unpopular/difficult for Liz & co to explain successfully to the public why for energy security reasons as well as energy transition reasons windfall taxes on North Sea oil and gas producers is the wrong thing.

Thanks, romaron, we are pretty much aligned in our framework thinking. Your comments and thoughts are helpful in adding to understanding. On your point about projects easily covering 2 decades and needing government involvement, it probably needs a sort of “government of national unity” approach. I mean that the issues involved, energy security and energy transition, require both the main parties to agree with and stick to the plan. Of course this won’t happen.

The so-called “excess profits" sit with the electricity generators, including renewables and nuclear, and gas producers, not with oil producers. Brent now is lower than in Feb 22 and until then had been going up for reasons separate to the war. Reforming how electricity is priced, so away from the current marginal-cost method, appears to be key to help the consumer. Windfall taxing oil producers won’t help drop electricity prices and would reduce the UK’s energy security. Long-term contracts needed with electricity suppliers. Based on their costs and allowing a fair/decent mark-up/profit. They, tho, don’t take the risks E&P energy companies take, and who therefore “deserve” the outcomes they get, good and bad, without governments subsidising/gifting in bad times or windfall taxing/stealing in good. Energy security will trump climate change concerns for a long while. The UK has the resources to be pretty much energy independent. Why give up this advantage? Team Truss seems to get all this. Could the new NS licenses have an obligation, if needed, to supply the domestic market at cost plus reasonable mark-up? Maybe just for gas. Maybe just for new gas. Why allow new production but not keep the ability to use it for local consumer benefit (lower cost and or security of supply)? Such a move could be viewed as a form of tax or semi-nationalisation or, better, a form of government-imposed hedging for national security reasons. As long as there is a floor as well as a ceiling, and the mechanism allows a profit in all cases it could work. Harder and less necessary, for several reasons, to do for oil.

The "Socialist Worker" (never thought I'd reference them) can help:
"British gas producers and electricity generators are forecast to rake in up to £170 billion in “excess profits” over the next two years, according to estimates from the Treasury."
"Excess profits are defined by the Treasury as the difference between the profits energy producers are predicted to make in the future, and the profits they could have expected to make based on the outlook for prices before February. So it’s £170 billion on top of the already gross amounts they were grabbing."
https://socialistworker.co.uk/news/energy-firms-wallow-in-excess-profits-as-debt-and-destitution-grow/

So... why is Sir Keir targeting Oil producers?
Seems the "marginal cost" method used to calculate electricity prices needs looking at.

PMQs today:
“Sir Keir was quick to put Ms Truss on the spot over another windfall tax on oil and gas giants raking it in as energy prices have soared [but not oil...] following Vladimir Putin’s invasion of Ukraine.
“I’m against a windfall tax. I believe it is the wrong thing to be putting companies off investing in the United Kingdom just when we need to be growing the economy,” Ms Truss declared.
Sir Keir responded: “I ask because the Treasury estimates are that the energy producers will make £170 billion in excess profits over the next two years.”
Sir Keir, who clearly has the O&G producers in his sights, pls define “energy producers” and “excess profits” and where are the activities (in which fiscal jurisdiction) located to make up this this £170B? A half-truth can be worse than a lie…

Stumpy, https://www.bnnbloomberg.ca/truss-rules-out-fresh-uk-windfall-tax-and-defends-energy-profits-1.1804684

Thanks, will do, romaron, and thanks for the comment.
It should be an interesting week coming up.

romaron, on electricity pricing, my understanding is that the price is set on a dynamic/ongoing basis, and based on the marginal cost to provide the last electricity to meet the highest demand at any measuring point. As the energy source normally used to meet the highest demand is gas, it is the price of gas which effectively sets the price for electricity. Seems a strange mechanism, to price according to the highest cost of production when that production amount may only be a small percentage of the total production. I guess there are reasons for this and that it was fit-for-purpose at the time. The article you refer to suggests a better way to arrange things. The issue I see is that this “changing the rules mid-game” is that a price cap as suggested on domestically produced gas is effectively another form of taxation. Did the government offer subsidies to gas producers in mid-2020 when the NG price dipped to $1.70? It would also seems to oblige producers to sell to the local market at prices set by the government. “Caps to be set at levels that reflect the investment risk and ensure well-run energy producers are profitable and want to continue investing in the energy transition”. Wow, how to do that without the hand of the market? Will there be a “floor” cap too? It all starts to smell like a semi-nationalisation.
Maybe a case of this being an exceptional moment and “needs must”, but this sort of market intervention by the government through determining the price to be paid combined with export controls and is what I fear (mrc, per your post 1/9/22 12:17). If they start doing it with gas why not with oil too?

31/8/22: “Ms Truss also said she would take action to boost the UK's domestic energy supplies, saying "short-term decisions" had left the UK "dependent on the global energy price".”
LT ruling out new taxes (and levies…) and stating the above clearly is positive for UK O&G producers. Her becoming PM next week should increase investor confidence in the sector. Altho…who would invest big bucks for the longer term without some form of similar agreement also from KS/Labour?
Back to LT’s comments; how would boosting UK’s O&G production reduce the dependency on the global energy price? There is a “global oil price” (or prices, if you like), but is there a “global energy price”? Perhaps the boost she is thinking of is more in non-O&G energy supplies, but I understood her comments were made in relation to O&G producers. More UK gas production could result in a lower gas price for the UK as “gas is more local” etc .However, how could more oil production result in the UK paying less for it than the price set by the global market? To ensure the UK’s energy security, could there be a scenario where the government does not permit the export of oil? But, even if this case, the price paid should be the globally set price (less something for less transport). If the government did forbid oil export and set a lower than global-market price it would pay for it would it not, in effect, be in a different way taxing further the UK’s oil producers?

But speaking at a hustings in Cheltenham, Ms Truss said she "absolutely" did not support windfall taxes, calling it a "Labour idea".
https://www.bbc.com/news/uk-politics-62513966

A good sign?
“There will be no oil and gas producers meeting with the Chancellor tomorrow [today] trade body OEUK has confirmed, despite reports to the contrary.”
https://www.energyvoice.com/oilandgas/434638/windfall-tax-no-oil-and-gas-firms-meeting-with-chancellor-tomorrow/?utm_source=Sailthru&utm_medium=email&utm_campaign=Energy%20Voice%20-%20Daily%20Newsletter%202022-08-11&utm_term=Energy%20Voice%20-%20Newsletter

Labour has called on the government to close investment allowances in the energy profits windfall tax, which it has described as a "loophole", in order to help households pay the bills.
Shadow chancellor Rachel Reeves said: "The Tories are handing oil and gas giants billions in tax breaks, just for them to pass it on to shareholders. The government should be ashamed this loophole existed in the first place.
https://www.morningstar.co.uk/uk/news/AN_1660193455036473900/uk-ministers-to-hold-talks-with-energy-bosses-over-winter-price-hikes.aspx

Likely, almost certain, Enquest will be at this table. Oh to be a fly on-the-wall at this meeting.
"UK Business Secretary Kwasi Kwarteng will meet with North Sea oil and gas producers on Tuesday {26/7/22} to discuss the government’s windfall tax.
The roundtable discussion will be attended by executives of North Sea-focused firms such as Harbour Energy Plc and Neptune Energy Group Ltd., but not the international oil majors, according to people with knowledge of the meeting.
The talks come in response to the government’s Energy Profits Levy, which was passed into law earlier this month increases taxation on oil and gas profits by 25%. Independent producers have said that the tax will disproportionately affect them compared to major oil companies, some of which have been posting record profits thanks to soaring energy prices."

Ahxul, posting debt as being around twice what it really is is sloppy. A $1b mistake is hardly a rounding error. Pls try harder :)

Showing the way with a massive oil-fired torch held high.
Over £0.5M purchased yesterday and the day before, communicated today after the market closed.

KO, yes, but for Enquest an exemption for “smaller producers” would trump everything.

Will there be an exemption as being sought per the final para below…?
"OEUK has been pushing for changes to the EPL and we are pleased to have got three key changes in the amended legislation," said OEUK sustainability director Mike Tholen.
The government changed the draft bill to set a firm end date for the levy in December 2025 and allow firms to reduce the tax by spending on decommissioning old fields and investing in the electrification of producing fields.
But OEUK also wants Zahawi to exempt smaller producers from the levy and for it to reflect the nature of investment and loss cycles in the industry which can stretch over decades.”