BP urges ‘orderly’ UK energy transition, competitive North Sea regime

The new UK government must ensure a competitive tax and regulatory regime for the North Sea if it is to achieve an "orderly" energy transition, BP North Sea vice president Doris Reiter said Sept. 17, as the government draws up new tax plans.

Speaking at an Offshore Energies UK (OEUK) conference, Reiter cited warnings that the North Sea oil and gas sector could be "fatally wounded" by the new government's tax plans, including an increase in the Energy Profits Levy introduced in 2022, and the removal of EPL investments allowances.

The plans are due to be unveiled by Chancellor Rachel Reeves in an Oct. 30 budget. They include a three percentage point increase in the EPL that would lift upstream taxation to 78%, and removing capital expenditure allowances.

Some companies in the sector are paying more than 100% in tax as a result of complexities in the fiscal regime, Neil McCulloch, CEO of Spirit Energy, said.

Operators have warned the cancellation of capital allowances could deter further investment, and have put a number of projects on hold.

"An orderly energy transition can only happen if we have an investment environment that allows our projects to remain competitive," Reiter said.

"We know there are opportunities for our people and our projects to keep supplying the energy the world needs today, the country needs today, while progressing together through the energy transition. But... this can only happen if the investment conditions around us allow," she said.

OEUK said earlier the UK oil and gas industry could still produce up to 13.5 billion barrels of oil equivalent, but current tax plans risked the country forgoing some GBP12 billion ($16 billion) of tax revenue by 2029.

UK oil and gas fields still meet around half the country's energy needs, but production has been in sharp decline, with oil output down 9% on the year in the second quarter of 2024 at 642,000 b/d.

At the same event, Chris Johnson, Baker Hughes' regional vice president for oil field services and equipment, said the EPL was having a "negative cascade effect" on supply chain companies throughout the UK. "We expect this to worsen with proposed changes to the EPL and if the pledge to not issue new licenses to explore new fields is fully enacted," he said, noting the government has said it will carry out a review into its new licensing plans.

"Baker Hughes has already experienced the cascade effect," he added.

For the government, junior energy minister Michael Shanks offered reassurance, saying: "Oil and gas will continue to play a critical role in our energy mix for many, many, many years to come... Our priority now is to ensure a phased, prosperous and responsible transition."

However, there was a warning from the more senior Secretary of State for Energy Security and Net Zero, Ed Miliband, alluding to Europe's recent energy crisis. "The experience of the last two-and-a-half years has shown us that fossil fuels simply cannot provide us with the security or indeed the affordability we need -- quite the opposite," Miliband told a separate event in London, according to a transcript. "British-based renewable energy is the cheapest and fastest way to reduce vulnerability to volatile global fossil fuel markets."

Integrated approach

However, the head of offshore regulator the North Sea Transition Authority, Stuart Payne, laid out a more pragmatic approach of integration between different energy supply sources, alluding to efforts to reduce emissions from upstream oil and gas facilities, which account for 3.5% of UK carbon emissions according to OEUK.

"The way to make this transition work is through the integration of different energy systems," Payne said at the OEUK event. "We are heading into a new era of hub-based development -- oil and gas hubs today can become decarbonized through connections with offshore wind farms, or power from shore."

"Oil and gas production in the future will be the feedstock for industrial processes, with the carbon dioxide emissions captured, transported and stored offshore, maybe through repurposed pipelines and into depleted fields," Payne said.

The UK upstream sector is currently beating emissions reduction targets agreed with the previous government, OEUK said in a new report, with emissions from upstream production processes down by 28% since 2018, thanks to operational improvements such as upgrading power generation systems.

It said methane emissions had dropped by 53% over the same period, with the volume of gas flared or vented into the atmosphere down by 52%.

The industry is pledged to reduce its upstream emissions by 25% by 2027, which it says it has already achieved, and by 50% by 2030 -- compared with a 2018 baseline -- under a North Sea Transition Deal agreed in 2021.

The Platts Dated Brent benchmark was assessed at $73.87/b Sept. 16. Platts is part of S&P Global Commodity Insights.