Treasury to pay billions to North Sea gas producers under energy bill support scheme

According to Transition Economics analysis commissioned by Uplift, North Sea oil and gas companies are expected to get a ‘windfall’ payment worth £7 billion from the government’s six month energy support scheme, despite making eye-watering profits, adding pressure to calls for a strengthened windfall tax.  

If gas prices return to levels seen in September, the amount of taxpayers money flowing to these companies is expected to more than double to over £15 billion. 

BP and Shell are each expected to receive between £500 million and £1 billion from the Treasury, depending on the gas price.

Under the Energy Price Guarantee for households and the Energy Bill Relief Scheme for businesses, the government has committed to cover energy costs above a certain unit price for gas and electricity, with the money paid via energy supply companies and electricity generation companies.

Analysis by Transition Economics, commissioned by Uplift, looked at the revenues expected to flow from the Treasury to oil and gas companies operating in the North Sea from these energy support schemes, which are set to run for the six months from October 2022.

Our analysis estimates that this winter, £7.4 billion in revenues will be effectively paid from the UK government to oil & gas companies extracting gas on the UK Continental Shelf, if this winter is a typical winter. This could rise to £15.3 billion, if wholesale prices return to levels seen in September.

This includes

  • £1,090 million to £2,260 million paid to Total
  • £1,030 million to £2,130 million paid to Harbour Energy
  • £580 million to £1,210 million paid to Shell
  • £500 million to £1,040 million paid to BP.

Our analysis also estimates that government will effectively make a total payment to all oil & gas companies of between £19.8 billion to £42.8 billion if this winter is a typical winter, or between £23.2 billion to £50.1 billion if this winter is a cold winter. These are revenues flowing both to UK North Sea companies, and to companies who export gas to the UK from other countries (such as Norway and Qatar).


£2bn lost to UK local authority pensions due to oil investments

This analysis, commissioned by Platform London, shows that UK local authority pension funds that are not divesting from fossil fuel companies could have lost at least £1.75 billion in value over the past three years as a result of investments into just nine oil & gas companies.

56 pension funds were identified as holding direct investments into oil companies and not having made public commitments to reduce direct fossil fuel holdings. These funds’ combined direct investments into nine oil companies were valued at £3.6 bn in spring 2017, and would have dropped to £1.8 bn by November 2020.

The three funds losing the most value have all publicly opposed divesting direct holdings. 

  • Greater Manchester Pension Fund was the most exposed, potentially losing £375 million in value, or 2.2% of its total holdings. This is equivalent to £1,000 per pension member. 
  • West Yorkshire Pension Fund was second most exposed in terms of total value, losing £211 million in value. This is equivalent to £740 per pension member. 
  • Nottinghamshire was third with £81 million, equivalent to £1,070 per pension member.

In early 2020, Reuters reported Greater Manchester and West Yorkshire funds as claiming they would have lost £400m and £160m respectively over 3 years to 2019, if they had divested from fossil fuels. The losses by 2020 on only the nine top oil companies almost entirely eradicate this gain.
Share values are volatile, and regularly rise and fall. However, repeated Financial Times reporting on the falling asset values and impairments amongst big oil companies describes this not as a temporary downturn, but as “the direction of travel” . Despite the expected continued use of fossil fuels in some industries for many years, the push to net zero will hit the underlying business model of large oil & gas companies significantly – especially those that rely on high oil prices to turn profits.


The UK North Sea as a Global Experiment in Resource Extraction

This report by Juan Carlos Boué was published by ScotE3 with support from PCS and Platform, and edited by Transition Economics’s Mika Minio-Paluello.

Juan Carlos Boué’s report (pdf download) analyses the UK’s North Sea oil tax regime, which has handed super-profits to international oil companies while the taxpayer now foots the bill for decommissioning.

Boué argues that, since the 1970s, these tax arrangements have been “at the forefront of the process of redefinition of the economic frontiers of the State”. These “neoliberal governance structures”, designed in the UK, were exported across the world in the 1980s and 1990s, along with privatisation and “market liberalisation”. The global spread of the UK governance model did produce oil production gains, Boué concludes, “but also destabilised many key petroleum producers, whose governments found themselves starved of fiscal income”.

Boué brings the story right up to date, showing how, as North Sea oil production declines, the government has pushed the burden of decommissioning costs on to the public purse, while the oil companies eke out every last drop of oil, and of profit, from their operations.

Download report: