The UK must invest in new oil and gas wells, across the North Sea, to replace the 2,100 destined for decommissioning, says Offshore Energies UK’s chief executive.
Deirdre Michie, chief executive of OEUK, has warned that the UK’s oil and gas production will drop in the coming years unless it supports energy companies in further North Sea exploration.
She has warned that as older wells become depleted and are shut down new ones must be opened – or the UK will become increasingly dependent on imports.
Deirdre Michie’s comments came in a powerful speech to the offshore industry’s Decommissioning conference in St Andrews.
She said: “Last week the government increased the Energy Profits Levy that it had introduced back in May.
“This means our headline rate of tax in the UK will be 75% – a step that will only serve to further undermine investor confidence in our basin.
“Our industry was planning to invest £200 billion in the broader energy sector – this includes low-carbon solutions – by 2030.
“Thereby helping to ensure that the UK can meet its net-zero and climate goals.
“But tax changes, such as the one announced on Thursday, really do jeopardise this and the onus is now on government to help build back investor confidence if we are to sustain these opportunities moving forward.”
Delivered Tuesday morning, Nov 22, at OEUK’s Offshore Decommissioning Conference.
Now, it’s been yet another busy and unprecedented few weeks for us as a sector
And it has been a very tough time.
Like other parts of the economy, we’ve faced COVID and the subsequent post-pandemic recovery.
We’ve witnessed political turmoil in the UK, with a constant revolving door of cabinet ministers, which has bred yet more uncertainty and concern.
And over time we’ve also seen political support for our sector flip-flopping -from us being hero to zero to somewhere in between.
And on top of all this, the horrendous war in Ukraine, caused by Putin, looks set to continue into another year.
This war is not only a humanitarian crisis and threat to democracy but has also served to exacerbate the global energy crunch and caused prices to surge.
We’re now facing a cost-of-living crisis with many people really struggling – and an economic downturn – with inflation rising by 11.1% over the past year – that’s a 41-year high!
And this has highlighted a real challenge for our sector where some operators, but not all, are making significant global profits.
And at a time when consumers are suffering, it’s easy to see why some think the simple answer is to keep increasing our taxes.
Yes, we agree, all sectors should play their part. And, indeed, this is what our members are committed to doing in terms of protecting energy security while driving the energy transition.
However, and despite the strong economic arguments that reinforced the need for stability and predictability to build back investor confidence…
Last week the government increased the Energy Profits Levy that it had introduced back in May.
This means our headline rate of tax in the UK will be 75% – a step that will only serve to further undermine investor confidence in our basin.
Tax changes such as these don’t just impact the operator community. They impact the supply chain, too. They impact local economies. Local jobs.
For decades, we’ve been a trusted and reliable partner to the UK economy. We’re proud to have contributed over £400 billion to the Exchequer in the last 5 decades, and billions more in capital and operating expenditure.
As a result, we still support jobs up and down the country – almost 200,000 in fact.
And importantly, oil and gas provides 75% of the country’s total energy needs – that’s 24 million homes heated with gas boilers, and 32 million vehicles powered by petrol or diesel.
This reliance on hydrocarbons is changing and we’re helping to drive that change – but it can’t happen overnight…
Therefore, security of our oil and gas supply remains essential as we develop other low carbon energies.
Our sector has the skills, technology and ambition to drive the energy transition. Indeed, our industry was planning to invest £200 billion in the broader energy sector – this includes low-carbon solutions – by 2030, thereby helping to ensure that the UK can meet its net-zero and climate goals.
But tax changes, such as the one announced on Thursday really do jeopardise this and the onus is now on government to help build back investor confidence if we are to sustain these opportunities moving forward.
So, we continue to call on Government to work closely with the sector to mitigate any short-term unintended consequences of the tax hike.
We are also reinforcing the need to create a long-term tax regime which is fit for purpose, that will protect investment in vital oil and gas projects, and will simultaneously help to unlock the energy transition.
Because only by working together can we make our visions of net-zero and energy security a reality.
Now, what does this mean for the decommissioning community here in the room today?
Well, I think there are two possible scenarios ahead… for some companies, the EPL may mean projects become uneconomic more quickly resulting in COPs being brought forward… meaning decom activity happening sooner.
On the other hand, it might mean reprioritisation of spend – where operators push-back their decommissioning activity and prioritise their reduced capital on new projects instead. So, two different tales… neither of which are particularly good for the North Sea basin.
And so, it’s vital – now more than ever – for us to work together – as operators and suppliers – and with our government and regulators – to ensure continued success in the future of this important part of the life cycle of our industry and increasingly for the other developing energies too.
We have done this before – we can do it again. We’re a remarkably resilient sector – we take the slings and arrows and we step right back up and keep moving forward.
And the decom community, while experiencing the same turbulence as the wider industry, has managed these challenges incredibly well.
This is clearly evident in the amount of work that has gone on over the last year and that which is planned for the next decade.
You’ll shortly hear from Ricky [OEUK’s Decommissioning Manager] that our Decommissioning Insights report forecasts up to £20 billion could be up for grabs for the supply chain – that’s a huge wave of work.
But as always, this comes with a caveat… And that is that our skills, services, and technologies are highly sought after and very transferable. We face competition from many other parts of the economy.
And so, it becomes extremely important to plan ahead, to be transparent, to be collaborative, and to be fair.
Because again, only by working together will we be able to manage this upsurge in activity efficiently and sustainably and not find ourselves left uncompetitive and losing out on the opportunities that are there for our bold sector to seize.
We need bright new ideas, alternative ways of working, and to share lessons with each other – which is exactly what this conference is all about.
And so, as we anticipate a difficult year ahead business-wise, decommissioning can be a shining example across oil and gas, bridging into the broader energy transition.
You’ll see from the Conference agenda today, that we’re already trying to do our part by bringing the wind sector into the fold, and ensuring we share the important lessons we’ve learned over the years -some of them the hard way!
Indeed, building on this, I’m very happy to say we’re launching a Wind Decommissioning Network next year to help our fellow wind developers plan for their futures. And it’s not just wind that we’re looking to support either.
This community is leading the way in terms of re-use and repurposing of vital assets…
Whether that’s platforms, pipelines, or even wells to aid the transport and storage of carbon, or even potentially the production and transport of hydrogen.
These are all initiatives and opportunities to be extremely excited about. So, just as you pioneered decommissioning in the UK for the oil and gas sector and have taken that expertise all over the world, we now have the opportunity to do it all again – but this time, supporting other low-carbon energies right here at home.
So, let’s do exactly what the title of this conference says – let’s energise decommissioning, across all areas of the energy sector, together.
Notes to editors:
- UK production will fall by up to 15% a year unless there is rapid investment in new infrastructure.
- If there is no such investment then, by 2030, we will be reliant on other countries for at least 80% of our gas and 70% of our oil
- Oil and gas provide 75% of UK energy, 85% of UK homes are heated by gas boilers – fuels our cars, keeps the UK’s lights on, and businesses running
- The waters off the coast of the UK still contain oil and gas reserves equivalent to 15 billion barrels of oil equivalent (boe), enough to fuel the UK for 30 years