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Impact of Windfall Tax on North Sea Trade
Context
North Sea oil and gas producers are merging and shifting operations overseas due to Britain's windfall tax slashing profits.
Impact of Higher Tax
- Decline in Domestic Production: The strategy shift could speed up the decline of domestic production, increasing dependency on imports, vulnerability to higher consumer prices, and job losses.
- Cost-Cutting and Revenue Boost: Independent oil and gas producers are merging and looking abroad to cut costs and boost revenue.
- Energy Profit Levy: In 2022, the UK imposed a 25% Energy Profit Levy on the sector due to a surge in energy prices from Russia's invasion of Ukraine, swelling profits as consumers faced higher prices. Similar measures were taken in other European countries.
- Production Decline: North Sea production has decreased to around 1.2 million barrels of oil equivalent per day (boed) from a peak of over 4.5 million boed in 1999.
- Investment Reduction: A higher tax rate and removal of the investment allowance could reduce investment by 30 billion pounds ($38 billion), accelerating the decline in output.
Fact Box:About the North Sea
Windfall Tax
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