The British Government Cut Oil And Gas Companies Some Slack

The British Government Cut Oil And Gas Companies Some Slack
Daniel Johnston

9 months ago2 mins

What’s going on here?

The UK government gave oil and gas companies a break – or at least, a chance at one – on Friday.

What does this mean?

The UK government introduced a “windfall tax” for oil and gas companies last year, a bid to cushion the roughly $30 billion it spent subsidizing household bills. After all, war in Europe had sent energy prices skyward – and while everyday folk suffered, energy firms cashed in. Naturally, the big-buck brigade protested the tax, which flew from 40% to 75%, claiming it made investing in the energy industry less appealing and turned banks off funding projects. And scared of job losses and the sector faltering, the UK’s now shaking hands: that tax rate will drop back to 40% if energy prices fall below their long-term average for two straight quarters.

Why should I care?

For markets: Empty promises, empty tanks.

Oil and gas prices are almost back down to their pre-war levels, so you can hardly blame the sector for kicking up a fuss. But it might be kicking for a while: even the government’s own forecasts don’t expect that two-quarter fall to happen anytime soon, so it’s unlikely the tax cut will be triggered before 2028 – and that’s when the windfall tax is due to end anyway. Of course, plushy global demand might end up pulling prices below the cutoff, but if not, the British energy sector may stay running on empty.

Oil prices

The bigger picture: Inside job.

The UK can’t be too ballsy here. The country’s oil and gas production has tumbled 70% over the past two decades, and you can expect another similar drop before 2050. And while that might sound like a win for Mother Nature, it’ll only pan out in practice if there’s enough green energy to plug the gap. Otherwise, the UK will be stuck importing even dirtier fossil fuel from overseas, racking up a carbon footprint big enough to rival Bigfoot.

British oil and gas production
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