Government to net huge windfall from Southern North Sea as gas prices boom 

Cygnus Alpha 1

The Cygnus Alpha 1 gas installation in the Southern North Sea - Credit: Neptune Energy

The government could rake in something in the region £1bn worth of extra corporation tax as a result of oil and gas extraction from the Southern North Sea as prices rocket, figures suggest.

Trade body Oil and Gas UK (OGUK) has estimated that the UK industry as a whole will shell out about £3bn extra in the business tax as energy prices soar. It is lobbying against a further windfall tax which has been mooted as a means of helping to fill the government’s post-pandemic financial black hole.

The price of gas has reached eye-watering levels – shooting up from an average of 24.9p per therm in 2020 to a spot price peak of 454p per therm in 2021. That means a major tax boom for the Treasury.

A therm is about 100 cubic feet of gas. In 2020, 378bn cubic feet of gas was extracted from the Southern North Sea, along with just over 150,000 barrels of oil. 

The Cygnus gas field in the North Sea

A map showing Southern North Sea gas fields, including the major Cygnus field - Credit: OGUK

The region is only a small oil producer, but it does account for about a third of UK offshore oil and gas activity, according to OGUK.

That would mean in very rough terms its extra corporation tax contribution could equate to around £1bn of the total £3bn over the two years from April 2021. Overall, it is estimated the industry will shell out a total of around £5bn in the tax over the period.

The sector also employs 3,145 people in the Southern North Sea through key players such as Perenco, Shell, INEOS, IOG, Spirit Energy, Neptune and Harbour Energy.

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Most of the gas brought to the East region from the Southern North Sea comes from a gas field called Cygnus Alpha, and is piped in to Bacton on the Norfolk coast.

Around  9,000 workers spent their Christmas on the 261 oil and gas installations around UK coast – including many from this region – and will have just returned home after their four-week shift for a late festive celebration.

OGUK points out that the oil and gas sector’s profits are already subject to corporation tax rates of 40% – double that of all other sectors – so a rise in gas or oil prices always generates a boost for the UK Treasury.

But while it can plan for this, a one-off windfall tax on UK offshore oil and gas as proposed by some opposition politicians would “send financial shockwaves” through the industry, OGUK warned.

External relations director Jenny Stanning said: “Our industry pays up to 40% corporation tax on its profits – roughly double any other sector. That means that the UK Treasury is already gaining significantly from these price rises.”

She added: “In the longer-term a windfall tax would be damaging for consumers because it would undermine our competitiveness and discourage energy companies from investing in the UK. That would make us even more dependent on imports from places like Russia and the Middle East.

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