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Britain to waive oil, gas windfall tax if prices fall far enough

Published Jun 09, 2023 07:16 Updated Jun 09, 2023 14:51
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© Reuters. FILE PHOTO: A worker walks at the Coryton oil refinery in south-eastern England January 24, 2012. REUTERS/Stefan Wermuth
 
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By Shadia Nasralla

LONDON (Reuters) -Britain's windfall tax on oil and gas producers will not be applied if prices drop below certain levels for six months in a row, the finance ministry said on Friday, in a move the government hopes will boost energy security.

The energy profit levy (EPL) was introduced in May last year after a jump in energy prices resulting from Russia's invasion of Ukraine, but the industry has warned that the high tax level could lead to reduced output in the long term.

The EPL was raised from its initial 25% rate to 35% in November, bringing the overall tax burden to 75%. It has raised 2.8 billion pounds ($3.51 billion) so far, the finance ministry said.

With Friday's changes the windfall tax would fall away, reducing the tax burden to 40%, if average oil and gas prices fall to or below $71.40 a barrel for oil and 0.54 pounds per therm for gas for two consecutive quarters.

However, the government said independent price forecasts by the Office for Budget Responsibility suggest the price floor mechanism is unlikely to be triggered before the windfall tax’s planned end date in March 2028.

Benchmark Brent crude oil prices have fallen from a March 2022 peak of about $139 a barrel in the wake of Russia's invasion of Ukraine to about $75 a barrel currently, and have traded in a range between about $70 and $89 a barrel so far this year.

British wholesale gas prices skyrocketed in March 2022 to record highs of around 6 pounds per therm, but the benchmark front-month British gas price is currently trading around 0.63 pounds. It last traded below 0.54 pounds in April 2021, according to Refinitiv Eikon data.

Friday's move comes ahead of a final investment decision by Equinor on the $5 billion Rosebank oilfield, which has been earmarked for the first half. An Equinor spokesperson said the government's decision had "no direct consequences for us".

Oil and gas producers in the UK North Sea including TotalEnergies (LON:TTEF) and Harbour have said the levy would result in them cutting investment in the basin.

TotalEnergies and Shell (LON:RDSa) broadly welcomed the government's announcement on Friday, and said they were analysing details.

"This is a step in the right direction, but many more will need to be taken to restore confidence to our sector," said David Whitehouse, CEO of the North Sea sector's main business association Offshore Energies UK (OEUK).

From output of about 4.4 million barrels of oil equivalent per day (boed) - more than OPEC heavyweight Iraq - at the start of the new millennium, Britain now produces about 1.3 million boed and is on course for a decline to less than 200,000 boed by 2050, the NSTA sector regulator says.

Britain was a net oil exporter as recently as the 2000s, but now depends on both oil and gas imports.

($1 = 0.7960 pounds)

Britain to waive oil, gas windfall tax if prices fall far enough
 

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Comments (6)
Steve Br
Steve Br Jun 09, 2023 9:10
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Make no mistake, a windfall tax like a wealth tax is pure and simple theft. It's stealing out of private pensions and investments. Of course it won't affect the pensions of those that populate Westminster and Whitehall.
mk mk
mk mk Jun 09, 2023 9:10
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I think you are mistaken wealth tax with windfall tax. windfall tax is oil and gas etc companies extra normal profits.
Co Mon
Co Mon Jun 09, 2023 9:01
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Tax the benefit claimants and stop free access to the NHS. people abuse the nhs because its ‘free’, make it a paid service
Neil Raine
Neil Raine Jun 09, 2023 9:01
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I fully expect charges at some point for nhs but it will be means-tested so middle earners will just pay more while the people clogging up the system will carry on regardless. Our 'democracy' literally means that no party can remove free healthcare.
Co Mon
Co Mon Jun 09, 2023 9:01
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Neil Raine most middle earners stay fit and healthy and most likely only use the NHS 1-2 times a year (if that!)Why should people be paying tax from there earnings when they never use the NHS? Frustrates me. Stop the tax on incomes to pay for the NHS and let us make the choice. Most people end up going private becuase the NHS is so slow.
Matt Hester
Matt Hester Jun 09, 2023 9:01
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NHS will go, it biggest drain on government spending. Can’t pay for private? Tough, you suffer. It will happen
Theo Marshall
Theo Marshall Jun 09, 2023 8:52
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Get fracking here and drilling in the Falkland Islands where the government can't discourage our energy needs. Also sign an agreement with Iceland to lay cables that bring geothermal electricity to the UK.
Jamie Smith
Jamie Smith Jun 09, 2023 8:44
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The UK oil and gas revenues shoukd have been goung into a UK Sovereign Wealth Fund, but no lets just keep spending it on stuff we cannot afford like the NHS. Unless the givernment can prove that these comoanies have been manipulating prices they shoukd leave them well alone. Its called capitalism.
Neil Raine
Neil Raine Jun 09, 2023 8:03
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Just another proxy income tax which most people bizarrely think is a good idea. How about sorting out the energy market in the UK?
Chris Chadwick
Chris Chadwick Jun 09, 2023 7:57
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The beatings will continue until morale improves. Now get drilling!
 
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