When the UK’s government slapped a 25% windfall tax on oil and gas producers in 2022, the industry warned this could be the death knell for local oil and gas production. Four years later, the UK’s oil and gas industry is being described as “irrelevant”.
The UK’s oil and gas production has slumped from some 4.4 million barrels of oil equivalent daily 25 years ago to some 1 million barrels of oil equivalent daily to date. This is seen dropping to as little as 150,000 barrels by 2050. In fact, it may drop even more sharply as several successive governments have focused on a transition away from oil and gas, to be funded with taxes from the oil and gas industry. The problem is, tax receipts tend to go down with production.
The Keir Starmer government has been especially enthusiastic about a transition away from hydrocarbons. Climate change minister Ed Miliband has consistently blamed natural gas prices for high electricity costs at home, refusing, however, to entertain the possibility of boosting local natural gas production to lower these costs. At the same time, the Starmer government has raised the energy industry’s total tax burden to well over two-thirds of income.
As a result of these policies, oil and gas now account for just 1% of the UK’s economy, according to one economist that Bloomberg cited in a recent article. Tax receipts have also shrunk to just 4.5 billion pounds, or about $6 billion, for fiscal 2024-25. That’s down from almost 10 billion pounds two years earlier. Investment has dried up, lending is down by 40-50%, and energy companies are quitting.
U.S. oil producer Apache said it would cease oil production at its assets in the UK North Sea by 2030, saying that “the expected returns do not economically support making investments required under the combined impact of the regulations.”
In a major blow to the UK industry, Ineos Energy last summer ended local investment, after warning a few months earlier that the tax is “the most unstable fiscal regime in the world.”
The UK’s “current tax regime, its over-regulation and the negative political attitude towards oil and gas are barriers that would deter any investor at the moment,” Ineos Energy chairman Brian Gilvary, a former chief financial officer at BP, said last December.
“The UK is now fiscally more unstable than almost anywhere else on the planet,” the CEO of Serica Energy, one of the biggest regional oil and gas producers, said back in 2024. “That means we are looking for new places to invest our money. And Norway is a place where potentially we could recreate our business model.” Ineos is not the only one. Norway, for all its green ambitions, has been happy to keep pumping oil and gas, and fill its sovereign wealth fund with oil revenue money to then invest in the transition, while the UK seeks to strangle its once thriving industry.
A hot activist scene has not helped the industry. The Starmer government made an attempt to provide for some limited possibility for new oil and gas exploration in the North Sea, but activists were quick to sue, and the court sided with them. In January 2025, the Rosebank and Jackdaw projects were declared unlawfully approved. Fiscal 2024-25 was the first year in the UK’s North Sea without a single exploration well drilled, Wood Mackenzie said last October.
Yet, some, including Wood Mackenzie, believe it is not even worth trying to revive the North Sea oil and gas industry, because there is not enough oil and gas left to make it worthwhile. The analytics company estimates that 90% of the UK’s commercially viable oil and gas reserves have already been exhausted. Bloomberg says that interviews with “engineers, oil producers and activists suggest the decline of oil and gas is now terminal in the UK.”
Whether or not the engineers, oil producers, and activists are right remains to be seen, however. Despite both continental Europe and the UK’s ambitions to phase out oil and gas in favour of wind and solar, there has been a shift recently towards a greater focus on energy security, and energy security begins at home. In evidence of this shift, Germany and the Netherlands recently agreed to explore for gas in their part of the North Sea. It may be only a matter of time before someone discovers there is, in fact, still quite a lot of oil and gas in the UK section of the sea after all, Equinor and Shell would not commit investments to Rosebank and Jackdaw based on unconfirmed rumors and zero exploration data.
The UK, according to Offshore Energies, still produces some 45% of the natural gas it consumes, and the government blames high prices while taxing gas producers into oblivion. Yet also according to Offshore Energies, the country could source as much as half of the oil and gas it needs domestically - and boost tax income. None other than former PM Tony Blair said reviving the North Sea oil and gas industry could contribute 165 billion pounds to UK economic growth.
By Irina Slav for Oilprice.com