Cost-of-living crisis: Oil and gas is facing a 'trilemma' - can it also shoulder a windfall tax?

There was an oil industry conference in Aberdeen this week where the various weights of the world seemed to sit heavily on the shoulders of the well-dressed delegates.

The three major challenges that continue to push our resolve – the invasion on Ukraine, the climate emergency, and the cost-of-living crisis – came together as one at the P&J Live events centre on Tuesday.

These three dark challenges are fuelling the ‘energy trilemma’ of security of supply, affordability and sustainability. The trilemma is kept well fed by geopolitical and environmental chaos, with the industry uncomfortably sitting at the centre of it all.

Now the industry is trying to bat off the threat of a windfall tax designed to directly help those hardest hit by rising energy bills.

It comes after record first quarterly profits were recorded by BP (£5 billion) and Shell (£7.2bn), partly driven by a jump in demand following the pandemic and price rises caused by the invasion of Ukraine.

The message at the Offshore Energies UK conference was the industry had enough on its plate, not least given the North Sea Transition Deal, which was signed last year following deep negotiation with the UK Government.

It commits the industry to removing 15 million tonnes of emissions from energy production by 2030 – equivalent of annual emissions from 90 per cent of the UK’s homes – with the North Sea basin to become net zero by 2050. It’s no mean feat for an industry built on fossil fuel extraction. Some of this will be achieved by the electrification of oil platforms, some using offshore wind, but progress needs to quicken.

Commitments have also been made to advancing carbon capture and storage, which will lock up emissions deep in offshore geology, and the production of low-carbon hydrogen to power everything from domestic heat to heavy transport.

Oil and gas firms operating in the North Sea could face a windfall tax as political pressure mounts on the government to act on the cost of living crisis. PIC: Phillipa McKinlay.

Industry argues that promised investment in such crucial transition projects will be at risk from a windfall tax and that short-term political gains don’t fit with long-term planning.

True, we are relying on the industry to improve the bigger picture, but can it really detach itself from the reality that few of us are being spared in the here and now? It seems increasingly unlikely the UK Government can be seen to let that happen.