The UK and Norway, two neighboring jurisdictions in the North Sea, have chosen starkly different paths to handle their oil and gas resources. The net-zero-obsessed UK is driving investors away with regulatory and tax uncertainty, while Norway – also aiming for net zero – backs further exploration and cashes in on the massive royalties.
The result of the different approaches to the North Sea’s oil and gas has become glaringly evident this decade.
The UK imports growing volumes of oil and gas as its mature fields are depleting and no new licenses are being awarded. Norway has boosted oil and gas production, has become Europe’s (and the UK’s) top gas supplier, auctions acreage every year, and plans to do so for the foreseeable future to help its allies increase energy security.
A Tale of Two North Seas
“There is a huge difference between the two countries’ approach and it has become bigger over the past five years,” Tom Erik Kristiansen, an energy specialist at Nordic-focused investment bank Pareto, told The Telegraph.
“In Norway, you have two or three of the biggest parties agreeing not to touch [the oil and gas industry]. In the UK it is much more party political.”
For decades, successive governments in Norway have supported the oil and gas industry and the domestic supply chain, acknowledging that these create jobs and economic opportunities.
Norway, unlike the UK, strongly supports oil and gas development and exploration for undiscovered resources on its shelf, not only in the North Sea, but also in the Norwegian Sea and the Arctic waters in the Barents Sea.
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The Norwegian government has started to plan its 26th oil and gas licensing round in little-explored frontier areas as Norway looks to boost exploration and resources to stem an expected decline in production from the early 2030s.
In Norway, companies can get refunds of 71.8% of losses associated with exploration. The taxes in Norway are high, but they have been this way since the 1990s, providing long-term certainty to operators.
This is so unlike in the UK, where the tax regime has changed every year since 2022 by both Conservative and Labour governments, making any investment plans so unpredictable that companies are quitting the UK North Sea.
Since the Energy Profits Levy (EPL), or the windfall tax, was initially introduced by the Conservative government at the height of the energy crisis in 2022, oil and gas companies operating in the UK North Sea have been calling for certainty in the regulatory and tax framework. Recent changes in policies and the rising taxes imposed by the current Labour government have driven away operators, who say that a lack of North Sea investments would only make the UK more dependent on oil and gas imports.
Late last year, as Labour further raised the windfall tax, it also removed the 29% investment allowance on oil and gas operations, further stifling UK North Sea investment.
The result has been an exodus of companies, a decline in production, and a slump in exploration drilling.
In fact, due to the fiscal turmoil in recent years, 2025 is set to become the first year since 1960 without a single exploration well in the UK North Sea, according to energy consultancy Wood Mackenzie.
What The Future Holds
The UK’s unpredictable regulatory and tax regime has already pushed operators away from the UK North Sea.
At the end of last year, 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 this summer ended UK 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 government has launched consultations on what type of tax regime should come next and on whether to award licenses in the North Sea. Decisions are expected later this autumn.
The main offshore energy industries association, OEUK, urges the government to replace the Energy Profits Levy with a permanent profits-based tax system and update licensing rules “to provide predictable access to new resources, ensuring infrastructure is fully utilised rather than decommissioned prematurely.”
The loss of investment is reducing oil and gas production—it has plunged by 40% in the past five years and is on track to halve again by 2030, OEUK warns.
While the UK is in a race against time to save its oil and gas industry and its industrial capabilities from demise, Norway is enjoying higher oil and gas production as new fields come online.
But Western Europe’s largest oil and gas producer, Norway, is not complacent. It is aware that it needs more exploration and new field developments to keep output at high levels while the world still needs it.
The current and past Norwegian governments have continuously bet on the oil and gas industry and the massive revenues it raises for the country and its sovereign wealth fund, the world’s largest. Government Pension Fund Global, which is commonly referred to as ‘Norway’s oil fund’ because it was created with oil and gas revenues, has $2 trillion worth of assets and holds on average 1.5% of all listed companies in the world.
“Norway wants to be a long-term supplier of oil and gas to Europe, while the Norwegian continental shelf will continue to create value and jobs for our country,” Energy Minister Terje Aasland said in August, announcing the plans for a new licensing round.
“We need new discoveries to ensure that Norway can remain a stable and predictable supplier of oil and gas to Europe,” Aasland said earlier this year.
By Tsvetana Paraskova for Oilprice.com
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