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As the transition from harpoons to hydrocarbons showed, shifts in energy systems take time and prices can be volatile

https://www.ft.com/content/b7ee869c-58c8-41f3-9aa7-19e6ae1b339a

In a world aiming to move beyond hydrocarbons, forecasting oil demand is increasingly complex and subject to debate. Just look at the different forecasts from the International Energy Agency and Opec, two bodies that ought to know where oil markets are heading.

For 2026, the IEA projects modest growth of 770,000 b/d, bringing demand close to 106mn b/d — about 10mn barrels a day higher than a decade ago. Opec is more optimistic, forecasting 1.3mn to 1.4mn b/d growth, while the US Energy Information Administration expects 1.1mn b/d. This gap is striking given the short one-year horizon. It highlights the challenges of predicting demand amid shifting policies, technology and sustainability efforts — making oil’s future dynamic and uncertain.

If a 12-month outlook is difficult, what about 25 years? Last month, the IEA released its long-term World Energy Outlook 2025, with scenarios ranging from resilient oil demand to steep structural declines. Adding forecasts from global energy companies and agencies reveals trajectories even more bullish and bearish than the IEA’s. The divergence is almost cinematic: futures confidently projected but unproven.

Still, many hope for a dramatic decline over 25 years. But is that realistic when global infrastructure remains built on hydrocarbons?

History reminds us how hard it is to abandon entrenched infrastructure used for centuries in search of alternatives. In the 1850s, before crude oil was discovered in 1859 in Titusville, Pennsylvania, whale oil dominated lighting and lubrication. Sperm whale oil, considered then clean-burning and stable, was used for lubrication in things like watches, clocks and firearms. Oil from humpback, blue, fin, bowhead and right whales was lower quality and used cheaply for lighting, among other uses. Although the US whaling fleet was dominant, the US still imported significant amounts of whale oil from other nations such as the UK and France.

The US heavily relied on whale oil, but imports declined over decades as domestic crude oil production grew. By the 20th century, whale oil imports were minimal, mainly for ceremonial or speciality uses. What lesson can we draw today from its decline?

Lesson one is falling demand for one energy source during a transition doesn’t mean that demand collapses immediately. Whale oil imports fell before the crude oil discovery in 1859, but it took about 50 years for imports to drop to negligible levels. The US still imported whale oil worth 5 per cent of 1859 levels 50 years later. Simply put, shifting energy systems takes a long time.

Counterproductive tax changes are shaping up to be this government’s forte. Want more houses built? Why not jack up stamp duty, especially for first-time buyers. More investment in pensions? How about doing over salary sacrifice schemes. Growth? What better than landing business with £25 billion a year of extra payroll costs.

Still, even by Labour’s usual standards, the energy profits levy (EPL) on North Sea oil and gas is a corker. What’s the point of a tax that’s doomed to raise pretty much no money at all? Worse, one whose very existence hammers jobs and investment, so also cutting personal and corporation tax receipts too?

As Brian Gilvary, the Ineos Energy chairman, wrote in The Times this week: “The EPL, introduced in response to a temporary post-Covid oil price spike, is now undermining the revenue it was meant to raise.” Sure, he is talking his book. But he’s right.

The levy, brought in under the Tories in 2022 and extended under Labour, has resulted in North Sea groups paying a headline tax rate of 78 per cent. Designed as a windfall tax, it’s produced ever-declining sums to the taxpayer. First, because oil and gas prices have dropped since the jump that followed Russia’s assault on Ukraine. Second, because, in response to the levy, companies have cut jobs and investment.

The Aberdeen & Grampian Chamber of Commerce is the latest to make that point, noting the levy “has been blamed for thousands of redundancies, including 700 at Harbour Energy” and 800-plus at the big infrastructure hubs at Grangemouth and Mossmorran.

The upshot? Tax receipts from North Sea oil and gas production are down from £9 billion in 2022-23 to £4.5 billion in 2024-25, with the Office for Budget Responsibility forecasting just £300 million by 2030-31. One other reason for the drop, cited by the OBR? The levy pushing tax-paying companies into mergers with those “with a large stock of tax losses”, so enabling the combo to offset taxable profits.

Hence, the calls from the Aberdeen and British Chambers of Commerce, via a letter signed by 7,000 companies, business leaders and workers, for the government to bring forward its replacement for the EPL. It’s proposed a new oil and gas price mechanism (OGPM) from 2030 that will apply only when oil prices exceed an index-linked $90 a barrel and gas 90p per therm — much more like windfall territory than the EPL triggers of $74 and 54p. Only if prices stay below those levels for two successive quarters is the levy disapplied.

Maybe that’ll happen: oil’s around $61, though gas futures point to about 71p this quarter. But, if not, in the years waiting for the OGPM, more jobs — and tax receipts — will go. As the letter puts it, the government faces a “clear choice”: keep the EPL in place and see “thousands” more “avoidable North Sea job losses” or bring forward the OGPM and “unlock investment” — up to £50 billion on the maths of the lobby group Offshore Energies UK

Energy profit levy is blamed for job losses and stalling investment in North Sea as it has remained in place after oil and gas prices have dropped

https://www.thetimes.com/business/companies-markets/article/fast-track-north-sea-oil-fiscal-regime-hr3jtn7k5

More than 7,000 companies and business leaders have signed a letter publicly urging the government to fast-track its planned new North Sea fiscal regime in order to avoid further job losses.

Sir Ian Wood, the oil industry magnate and philanthropist; Martin Gilbert, the chairman of Revolut; and Dave Cormack, the chairman of Aberdeen Football Club, are among the signatories. They are all Scottish.

John Swinney, the Scottish first minister, port operators from around Scotland and trade bodies including Scottish Financial Enterprise and Scottish Renewables are also supportive of the document.

The letter was delivered to the Treasury by representatives from British Chambers of Commerce and Aberdeen and Grampian Chamber of Commerce. It follows the decision by Rachel Reeves to leave the energy profit levy in place until 2030 in last month’s budget. That means oil and gas firms will continue to face a tax on UK profit of up to 78 per cent.

The initial windfall charge was brought in under Boris Johnson’s government in 2022 because commodity prices spiked after Russia’s invasion of Ukraine.

The tax has been blamed for widespread job losses and stalling investment across the UK North Sea as it has remained in place even as oil and gas prices have dropped.

A new fiscal regime, the oil and gas price mechanism, has been announced and is to come into use from April 2030. That tax would only apply when oil prices go above a certain level and business leaders believe it should be adopted now to avoid further economic damage.

Russell Borthwick, the AGCC chief executive, said: “The North Sea is being taxed into decline, and it is workers and energy communities who are bearing the brunt.

“We now need swift, decisive action to prevent major job losses and the de-industrialisation of Scotland’s critical energy infrastructure.

“There is simply no credible justification for persisting with the current regime.

“If we can slow the decline in domestic oil and gas production and rely less on imports, the UK’s public finances will improve and the world-class workforce and supply chain needed for a genuinely managed and just transition will be protected.”

The letter highlights the Office for Budget Responsibility’s forecasts showing government revenue from the North Sea will drop from £4.5 billion to about £300 million by 2030.

Ben Martin, policy manager at British Chambers of Commerce, acknowledged the government’s North Sea Future Plan had a number of laudable elements.

However, he added, “it fails to address the elephant in the room, that investment and jobs are draining out of the North Sea at an alarming rate because of the crippling tax regime being imposed on the industr

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The second scenario is primarily a continuation of Britain’s existing trajectory and makes some progress towards decarbonisation, for example with the widespread adoption of electric vehicles under current policies.

However it would not be sufficient to meet net zero, with many homes still heated by natural gas and some gas still burnt in power stations without capturing all the emissions. The end result would be energy-related emissions would fall to just under half of current levels by 2050.

Both models include not only the costs that feed through to energy bills, such as building power plants and cables, but also much wider energy-related costs, including consumers buying and maintaining cars, boilers and heat pumps.

In both scenarios NESO sees Britain’s total energy-related costs falling significantly, from about 10 per cent of GDP at present to about 5-6 per cent by 2050. Costs would decline from the 2030s, falling below today’s levels in both scenarios, although the net zero scenario would only become cheaper from 2046.

However, especially in the early years, the cost of achieving net zero by 2050 is much higher than the cost of a more gradual approach.

NESO insisted that the costs did “not represent the cost of achieving net zero emissions” as the scenarios it modelled “do not represent the cheapest way of achieving net zero” and also reflect other variables such as more data centres in the net zero scenario.

Its figures also exclude the costs of carbon taxes, since they “represent a transfer from businesses to the exchequer, rather than an additional cost to the economy”. If carbon costs were included, the net zero scenario would be cheaper, it said.

NESO said the figures also did not reflect the benefits to Britain of investing in home-grown energy.

“The decarbonisation pathways involve a shift from spending on imported fuels to investment in Great Britain’s renewables, networks and more efficient electric heating systems. As well as unlocking reduced operating spending, this investment can bring local economic opportunities and support new jobs, alongside the opportunity for improved air quality and health outcomes,” it said.

Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, said the report showed the clear advantages of continuing with the UK’s net zero ambition.

“After decades of under-investment, upgrading the grid to unlock more British renewables and improve efficiency will create greater energy independence for the UK so that a future gas crisis won’t leave households, businesses and industry facing incredibly high bills,” she said.

“At the same time, moving to electric vehicles and heat pumps will limit our foreign gas imports as the North Sea continues its inevitable decline, making us less vulnerable to actors like Putin.”

Households could save £500 a year under slower path to net zero

Plans by Ed Miliband to make UK net zero by 2050 risk costing £350bn more than a slower approach to reducing carbon emissions, report suggests

https://www.thetimes.com/uk/politics/article/britain-net-zero-target-zxsppp998

Ed Miliband’s plans to make Britain net zero by 2050 risk costing the country £350 billion more than a slower approach to reducing carbon emissions, the government body in charge of keeping the country’s lights on has warned.

In a stark analysis the National Energy System Operator found that the UK could save an average of £14 billion a year if the country were to forgo its legally binding target to reach net zero. The figure is the equivalent of about £500 for every household in Britain per year or 0.4 per cent of UK GDP.

The additional costs of net zero would be highest over the coming decade, with a premium of more than £40 billion in some years, its analysis shows.

It added that if gas prices fell below the level of the government’s current forecasts then the net zero premium could rise to an average of £19 billion a year over the next 25 years.

Even if gas prices rose above current expectations then the net zero pathway would still be on average £5 billion a year more expensive, the analysis concluded, although Britain would be better protected from extreme price shocks like the gas crisis triggered by Russia’s invasion of Ukraine.

The figures were seized on by the Conservatives, who earlier this year dropped the party’s longstanding commitment to hitting net zero by 2050, which was enshrined into law by Theresa May. Reform has also pledged to scrap net zero targets.

“For years, the public have been told the lie that net zero means cheaper energy,” the Conservative shadow energy secretary, Claire Coutinho, said.

“This report shows the truth — rushing to net zero is forecast to make our energy system £350 billion more expensive than going slower.”

However a spokesman for the energy department said: “We fundamentally reject the idea that these illustrative scenarios accurately reflect the cost of moving to clean energy, which has enormous benefits in bringing down bills for good, energy security and securing well-paid, skilled jobs.

“They do not reflect or predict the cost of net zero, recognising the likely path is highly dependent on future fuel prices and the advancing pace of private sector rollout of net zero technologies.”

The National Energy System Operator (NESO) analysis compares two scenarios. The first is aligned to Miliband’s 2030 clean power plans and the Climate Change Committee’s 7th carbon budget, which recommends reducing UK emissions by 87 per cent on 1990 levels by 2040. By 2050, it would see heat pumps installed in most homes, powered by a vast expansion of offshore wind and nuclear plants.

Content of the article :

Some company mergers are grand gestures of bullishness and derring-do. Others are a forlorn attempt to huddle together for warmth in an inhospitable environment. The deal struck on Monday in the North Sea looks decidedly like the latter.

Oil and gas drillers in the chilly expanse to Britain’s east have been buffeted by the country’s Energy Profit Levy — commonly known as the “windfall tax”, even though it still applies when no wind blows. One response has been to seek scale. TotalEnergies on Monday merged its activities into a joint venture with private equity group HitecVision and Spain’s Repsol, which will have more than $15bn of net assets, according to Citigroup analysts.

The creation of this venture, named Neo Next+, follows a whole spate of other North Sea tie-ups. Italy’s Eni and Ithaca joined forces in April 2024. Equinor and Shell did likewise in December last year. Repsol and HitecVision formed their alliance, currently called Neo Next without the plus sign, only a few months ago.

It isn’t hard to see why all these companies have been rushing to team up. Forget deserts and deep seas: the UK is one of the hardest places in the world for energy companies to make money. Assets are mature, costs are high and the tax take has reached 78 per cent of profit.

Mergers help in two main ways: bigger companies can lower unit production costs, and a company’s tax credits from past losses can be offset against more production, so that the benefit flows through sooner. That has certainly been a key attraction in recent tie-ups: Ithaca and Equinor both had substantial tax credits on their balance sheets.

Neo Next+ will benefit from both lower costs and lower taxes. It will produce more than 250,000 barrels of oil a day next year. That makes it 80 per cent larger than its next competitor, Shell and Equinor’s combined business Adura, Citi reckons. And at the end of last year, before their merger, Neo Energy and Repsol together had almost $1bn tax credits, according to Stifel analysis.

For the UK government, meanwhile, such mergers have both costs and benefits. True, they create sturdier companies that can better withstand the stormy environment, and theoretically taxable profits. But that can be more than offset by the impact of those tax credits. The Office for Budget Responsibility partly blamed mergers for the £2.5bn reduction in its 2025-26 estimate of tax income from the North Sea.

The upshot is that mergers have squeezed the UK’s expected tax receipts from the North Sea at a time of already-declining oil prices and production. All of which does little to inspire love for the windfall tax, especially given the UK’s reliance on energy imports and the jobs the oil and gas sectors create. The levy looks to have been more successful at inspiring mergers than it has at bolstering the country’s finances.

Taxes on oil and gas firms ‘put UK jobs and security at risk’

Brian Gilvary, chairman of Ineos Energy, says the windfall levy is being maintained by a government ‘leading by ideology with no debate or logic’

Jobs, investment and Britain’s energy security are under threat from punitive taxes on North Sea oil and gas producers, the chairman of Ineos’s energy division has warned.

Brian Gilvary lambasted the government for “leading by ideology without debate or logic” after ministers decided to maintain a levy of 38 per cent on the profits of North Sea oil producers in the recent budget. This means the headline rate of tax on UK oil and gas operations stands at 78 per cent.

Writing in The Times, Gilvary, who served as chief finance officer at BP for eight years and now chairs Ineos Energy, said the tax policy threatened the jobs of “thousands of skilled workers,” leaving Britain exposed to price volatility and global supply shocks.

Oil and gas production from the North Sea is forecast to drop to 33 million tonnes by 2030, down from 74 million tonnes in 2022, he said, pointing to figures from the North Sea Transition Authority.

As a result, the levy was “undermining the revenue it was meant to raise” and tax receipts from North Sea oil and gas production had fallen from £9 billion in 2022-23 to £4.5 billion in 2024-25.

“Blocking new production simply hands jobs, investment and taxes to foreign producers while we still pay global prices for energy,” he said......

he government announced in the budget that by 2030 it would replace the EPL with a revenue-based tax called the oil and gas profits mechanism. This will apply an additional 35 per cent tax rate on sales of oil and gas above certain price thresholds. Gilvary said this was not soon enough. “If the EPL remains until 2030, the investment exodus will be irreversible.”

A spokeswoman for the Treasury said: “We know that oil and gas will be with us for decades to come and we value the North Sea’s skilled workforce, which is why we have also announced a new permanent windfall tax to replace the EPL when it ends. This gives the sector and its investors the long-term certainty and predictability they need to plan their investments and support jobs.”

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https://www.thetimes.com/business/energy/article/north-sea-windfall-tax-ineos-9k5frfd80

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Asked why he had left the tax in place, Sir Keir stated apparently incorrectly: “As the name makes absolutely clear, this tax only kicks in in relation to particular levels of profit. So it only kicks in at a particular level, so that’s the trigger for it.”

In a separate interview, he also said: “On the windfall tax ... that’s a windfall tax on excessive profits, so it doesn’t kick in. It’s not an automatic tax. The tax only cuts in when profits get to a certain level.”

The blunder provoked fury from leaders of Scotland’s offshore industry.

Robin Allan of Brindex, a trade body for North Sea operators, said Sir Keir appeared “incapable of describing the policies his government have enacted”.

Andrew Bowie, the shadow Scotland secretary, accused the Prime Minister of “staggering ineptitude”. The windfall tax is blamed for destroying the industry since its introduction by the Conservatives in 2022. When Labour won power last year, it increased overall levies from 75pc to 78pc and extended the windfall tax to 2030.

Daniel Slater, an analyst at investment bank Zeus Capital, said the PM should be forced to clarify his comments to win back support from the industry.

“This levy is continuing to do damage to the UK oil and gas sector, jobs across the supply chain and UK energy security,” he said.

“I think working people in the UK oil and gas industry would like to see the Prime Minister clarify his comments, to reassure the country that the Government does understand what it is doing.”

There is a mechanism to switch the tax off – but for that to happen, oil prices must average less than $76.12 and gas prices less than 59p per therm, both for a full six months.

Oil is well below its threshold but gas is set to stay well above the 59p level, meaning no relief from the levy is in sight.

It means multiple companies have announced cutbacks or departures from UK waters. Harbour Energy, the largest UK operator, has cut 700 of its 1,200 UK staff since the levy was introduced and moved almost all future investment abroad.

Bob Sanguinetti, who runs the Port of Aberdeen, said the windfall tax had been a disaster for his business with a 25pc drop in supplies going out to the offshore platforms through the port.

“This reflects the dramatic reduction in activity in the energy sector across the length and breadth of the country, with a direct impact on the nation’s ability to accelerate the transition to renewables and an increasing reliance on imports for the UK’s energy needs,” he said.

Mr Allan said: “Unfortunately, the Prime Minister evidently does not understand how the oil and gas industry is taxed in the UK. How can the industry expect to get fair treatment if the leader of the country is incapable of describing the policies his government have enacted?

“It is clear evidence that the Government has not properly understood the detail and implications of their policy on oil and gas.”

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