Companies may be forced to hand over slice of record profits after UK gas prices increase ninefold
Last modified on Tue 28 Dec 2021 11.37 EST
North Sea gas producers could face a windfall tax on the near-record profits they are likely to make from booming prices, in an effort to help protect households from the soaring costs of the energy crisis.
The government faces growing pressure to take urgent action to prevent a national energy crisis that could double home energy bills to £2,000 a year, including a multi-billion pound raid on North Sea gas earnings.
Operators in the North Sea are expected to rake in their highest profits since the 2008 financial crash after a surge in global market prices, while UK households shoulder record high heating bills as well as the cost of dealing with energy suppliers that have gone bust.
“What the government needs to do is step in,” Dale Vince, the chief executive of the energy supplier Ecotricity, told the BBC. “If they really believe the energy prices are too high and truly want to control them then they should subsidise the cost of energy right now.”
“The North Sea operators, for example, supply 40% of Britain’s gas [and] they have made a killing in this crisis because they’re getting paid at nine times more than they were last year – and nine times more than they need because the cost of getting gas out the ground has not gone up,” he said.
The UK’s North Sea oil and gas companies are expected to report near-record cashflows of almost $20bn (£14.9bn) for the current financial year, according to industry experts at Wood MacKenzie, after prices on the UK’s gas market climbed nine times higher in the last year.
In recent years, many of the larger publicly-owned oil and gas companies, which once dominated the North Sea, have been replaced by smaller companies. Some are listed, such as Harbour Energy, but a growing proportion of North Sea companies are backed by private equity, including Siccar Point, or overseas governments.
Emma Pinchbeck, the chief executive of the trade association Energy UK, told the BBC that the government’s thinking had “shifted over the last few weeks” because the crisis was likely to affect the whole economy.
“There’s definitely scope to look at how we intervene in the price shock, and I think it would be very welcome for [the Treasury] to be involved in discussions on what to do next, and to be looking really broadly at the energy sector,” she said.
The UK’s gas market breached the record high set in October this year by climbing to about £4.50 a therm last week, from about 50p at the beginning of the year, reigniting calls for an urgent intervention to protect customers from spiralling costs.
The business secretary, Kwasi Kwarteng, met energy bosses for emergency talks on Monday, but the discussions failed to produce a solution to what the Ovo Energy boss, Stephen Fitzpatrick, warned could lead to “an enormous crisis for 2022”.
Windfall taxes were first raised in September after the Spanish government set out plans to subsidise bills through a raid on companies which profited from the crisis. At the time, Kwarteng told a committee of MPs that the government was considering “all options”, including Spain’s €3bn (£2.5bn) windfall tax on generators and energy traders.
“I’m not a fan of windfall taxes,” the business secretary added. “But of course [the energy system] is an entire system and we have to think about how we can get the energy system as a whole to help itself.”
Wood Mackenzie said a windfall tax on the UK’s North Sea companies “cannot be ruled out”, particularly in light of the UK government’s ambiguity towards fossil fuel development within its 2050 net zero climate plan.
“There would be strong resistance from producers, who would typically stop investment in response. But if the government is already considering winding down the sector, this threat may not be as persuasive as it has been in the past,” the consultancy said.
The government is also reportedly considering a £20bn Treasury-backed fund, which could provide loans to help struggling energy companies cover the cost of rising wholesale energy prices, according to the Daily Telegraph. The loans would be repayable over a number of years to help protect households from a sudden rise in home energy bills next year.
The business department did not respond to a request for comment.
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