Hydrocarbons: London could abolish its exceptional tax if prices fall sustainably

London could eliminate earlier than expected its tax on windfall profits of oil and gas producers, introduced a year ago in the midst of soaring energy prices, if prices fall sustainably. The exceptional tax on energy benefits, which is expected to remain in place until March 2028, would be lifted if "prices return to normal levels for an extended period," the government said Friday in a statement.

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The British government had introduced at the end of May 2022 a tax on exceptional energy profits, which it had tightened in November: it is currently set at 35%, which has the effect of raising the ceiling tax on the profits of the sector to 75%. It targets in particular the British giants of the sector Shell and BP, which recorded record results in 2022, driven by the surge in hydrocarbon prices in the wake of the war in Ukraine.

But London is worried about the collapse of investments in the North Sea, which "jeopardizes" the energy security of the United Kingdom, according to the statement of the government. By promising to lower the tax on profits to 40%, the executive says it wants to "give certainty to investors to ensure the long-term future of national energy production".

Pressure from lobbies

The OEUK lobby, which represents the UK's offshore energy industry, warned at the end of March that nine out of ten operators in the North Sea had reduced their investments. But the tax would be abolished "only if average oil and gas prices fall (...) for two consecutive quarters" below a certain level, the government said. This level is set at 71.4 dollars per barrel for oil (North Sea Brent was trading Friday morning around 09:00 GMT at more than 76 dollars) and 54 pence per thermy for gas (British gas was at more than 68 pence on Friday). The government assures that, according to the current projections of the public body in charge of the budget forecasts OBR, prices will not return below these levels until March 2028.

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The exceptional tax "has raised about 2.8 billion pounds (3.3 billion euros) to date and should bring in nearly 26 billion pounds (30 billion euros) by March 2028, helping to finance cost-of-living relief measures," the British government said Friday. But "even with the +windfall profits tax+ in place, companies (in the sector) made record profits" last year, while many Britons "struggled to make ends meet," Greenpeace said in a statement, calling for higher and permanent taxes.