The UK’s oil and gas industry is grappling with a significant decline, attributed in large part to a 25% windfall tax implemented by the government in 2022. Industry leaders have cautioned that this tax could have dire consequences for local production, and recent statistics suggest they may be correct. Current production has plummeted from 4.4 million barrels of oil equivalent per day 25 years ago to approximately 1 million barrels today, with projections indicating a potential drop to just 150,000 barrels by 2050.
As the UK government emphasizes a transition away from hydrocarbons, the financial viability of the oil and gas sector diminishes. The Keir Starmer administration has been particularly assertive in pursuing this transition, with Ed Miliband, the climate change minister, attributing high electricity costs to natural gas prices while resisting calls to increase local production. Following these policies, oil and gas now contribute a mere 1% to the UK’s economy, according to statements made by economists referenced in recent reports by Bloomberg.
Tax receipts from the oil and gas sector have also experienced a steep decline, dropping to £4.5 billion (approximately $6 billion) for fiscal 2024-2025, down from nearly £10 billion two years prior. This downturn is compounded by a notable reduction in investment, with lending to energy companies falling by 40-50%. In a stark indication of the industry’s challenges, Apache, a U.S. oil producer, announced plans to cease oil production in the UK North Sea by 2030, citing inadequate returns due to regulatory impacts.
In a similar vein, Ineos Energy halted local investments after deeming the UK’s tax regime as the “most unstable fiscal regime in the world.” Chairman Brian Gilvary, a former chief financial officer at BP, highlighted that the combination of the current tax structure, overregulation, and a negative political climate presents formidable barriers to attracting investment. Serica Energy, another prominent producer, echoed this sentiment, stating that the UK has become fiscally less stable than many other regions, prompting a search for investment opportunities elsewhere, including Norway.
Norway continues to actively develop its oil and gas resources, even as it pursues green initiatives. This contrasts sharply with the UK’s approach, which has seen a rise in activism against fossil fuels. Attempts by the Starmer government to permit limited new exploration in the North Sea faced legal challenges from activists, resulting in a court ruling that invalidated the approvals for significant projects like Rosebank and Jackdaw. According to Wood Mackenzie, fiscal 2024-2025 marked the first year without a single exploration well drilled in the North Sea, raising questions about the future of the region’s oil and gas production.
Some analysts, including those at Wood Mackenzie, argue that reviving the North Sea oil and gas sector may not be feasible, as they estimate that up to 90% of commercially viable reserves have already been depleted. Interviews with industry stakeholders, including engineers and producers, suggest that the decline may be terminal. Nevertheless, the situation remains fluid. Recent conversations in Europe have indicated a renewed focus on energy security, which could shift priorities back towards domestic production.
Countries like Germany and the Netherlands have initiated plans to explore for gas in their sections of the North Sea, hinting at a broader regional strategy that might eventually reconsider the potential of the UK’s resources. According to Offshore Energies, the UK still produces around 45% of the natural gas it consumes, and there is potential to source as much as half of its oil and gas needs domestically, which could bolster tax revenues.
Former Prime Minister Tony Blair has advocated for reviving the North Sea oil and gas industry, suggesting it could contribute an impressive £165 billion to the UK’s economic growth. The ongoing debates surrounding the industry’s future will likely continue as stakeholders weigh the balance between environmental commitments and energy security considerations. As the landscape evolves, the UK must navigate these complex issues to determine whether it can revitalize its once-thriving oil and gas sector.
