The UK oil and gas industry is confronting a severe crisis, with production levels dramatically decreasing and local investment dwindling. The situation has worsened since the government imposed a 25% windfall tax on producers in 2022, a decision that industry leaders warned could jeopardize future operations. As of now, daily production has plummeted from approximately 4.4 million barrels of oil equivalent 25 years ago to just 1 million barrels, with projections suggesting it could fall to as low as 150,000 barrels by 2050.
The decline of the UK oil and gas sector is attributed to a longstanding government commitment to transition away from fossil fuels. This policy has been particularly pronounced under the leadership of Prime Minister Keir Starmer. Climate Change Minister Ed Miliband has criticized high natural gas prices for driving up electricity costs, yet he has not supported increasing domestic natural gas production to alleviate these financial strains. The energy industry’s tax burden has now surpassed two-thirds of its income, making it increasingly challenging for companies to sustain operations.
According to an economist cited by Bloomberg, oil and gas now contribute only 1% to the UK economy. Tax receipts for the fiscal year 2024-25 are projected to fall to £4.5 billion (approximately $6 billion), a significant decrease from nearly £10 billion just two years prior. Investment in the sector has plummeted, with lending down by 40-50% and many energy companies withdrawing from the UK market.
U.S. oil producer Apache announced plans to cease production in the UK North Sea by 2030, citing the unfavorable regulatory environment as the reason for its decision. Meanwhile, Ineos Energy has halted local investment, previously describing the UK’s tax framework as “the most unstable fiscal regime in the world.” Brian Gilvary, chairman of Ineos Energy and former CFO of BP, remarked that the UK’s current tax regime and regulatory landscape significantly deter investment.
The sentiment of instability extends to other companies as well. Serica Energy, a major regional producer, indicated a shift in investment focus towards more stable environments, such as Norway, which continues to capitalize on oil and gas revenue while pursuing environmental goals. The country’s fiscal strategy has bolstered its sovereign wealth fund, providing a stark contrast to the UK’s approach to its energy sector.
Activist opposition has further complicated efforts to explore new oil and gas opportunities. Although the Starmer government initiated limited proposals for exploration in the North Sea, legal challenges from environmental groups resulted in the cancellation of projects like Rosebank and Jackdaw, which were deemed unlawfully approved. Wood Mackenzie reported that fiscal 2024-25 marked the first year without any exploration wells drilled in the North Sea.
Some analysts suggest that reviving the North Sea oil and gas industry may not be feasible, as estimates indicate that around 90% of the UK’s commercially viable reserves have already been depleted. Interviews with industry professionals and activists have led to a consensus that the decline might be irreversible. Nevertheless, the urgency for energy security is prompting discussions about the potential for domestic oil and gas production.
Countries such as Germany and the Netherlands are revisiting gas exploration in the North Sea, highlighting a shifting focus on energy security across Europe. This growing trend raises questions regarding the viability of untapped reserves in the UK sector. Despite the UK government’s stance on reducing reliance on fossil fuels, the country still produces about 45% of its natural gas consumption, indicating that domestic production could be bolstered to mitigate high prices.
Former Prime Minister Tony Blair has suggested that revitalizing the North Sea oil and gas sector could yield an economic boost of £165 billion to the UK economy. As energy security becomes a priority for governments worldwide, the future of the UK’s oil and gas industry hangs in the balance, with crucial decisions to be made in the coming months.
