Analysts say Britain's windfall tax has made it cheaper to ship American LNG across the Atlantic than to drill new gas beneath the North Sea.
UK North Sea gas sector (LSE: N/A) No single London-listed producer carries a ticker for this story, but the numbers behind it will matter to every North Sea-exposed name on the LSE and AIM boards: new UK Continental Shelf gas developments now need a long-term price of roughly $13.50 per thousand cubic feet (MCF) to break even, according to Thunder Said Energy, against just $8-$9 per MCF for US gas that is liquefied and shipped across the Atlantic to Europe.
That roughly 50% cost gap has emerged largely because of Britain's Energy Profits Levy, which now imposes an effective 78% headline tax rate on oil and gas producers and has been extended out to 2030, according to the analysis, with Thunder Said Energy blaming the regime for pushing UK break-even costs up from around $7 per MCF previously to today's $13.50 level.
The comparison highlights a growing paradox for UK energy security: as North Sea output declines, Britain is increasingly reliant on imported gas, and it can now be cheaper to extract gas in the US, liquefy it, and transport it thousands of miles than to develop reserves off Britain's own coast. Seb Kennedy of Energy Flux called the situation 'a damning indictment of UK tax policy', arguing the current fiscal burden only makes sense if discouraging domestic production is the Government's real objective.
Norway offers a pointed contrast, it also levies a high headline tax rate on petroleum profits, yet Julius Baer's Norbert Ruecker says its more stable and predictable policy framework has kept its gas industry competitive against US LNG. Critics argue the UK's problem is therefore not the tax rate alone but the unpredictability layered on top of it, which continues to deter investors from committing capital to North Sea projects including Jackdaw and Rosebank.
Thunder Said Energy estimates that removing political uncertainty and easing the fiscal burden could roughly halve the break-even cost of new North Sea gas, but Kennedy cautioned that only a substantial policy shift, not a token adjustment, would move the investment needle. Climate campaigners counter that extra UK production would simply flow into internationally priced markets, doing little to cut household bills even if it boosted energy security, tax receipts and domestic employment. Any move to cut the windfall tax significantly would carry political risk, given the likelihood it would be framed as a giveaway to oil and gas producers.
This report is based on UK North Sea gas sector’s announcement and coverage by Share Talk. Company announcements can be tracked via London Stock Exchange RNS and Investegate, and the full results calendar is worth watching for the next update.
This article is for general information only and does not constitute investment advice or a recommendation to buy or sell any security. Photo: Ben Wicks on Unsplash.
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