Cuts to North Sea oil and gas investment weigh on Britain’s production sector

The fall in investment in the extraction of crude oil and natural gas from the North Sea helped drag the British productive sector into contraction in the three months to January 2024, data from the Office for National Statistics shows.

UK oil production is now at its weakest point this century, falling two-fifths below 2019 levels in the second half of last year, amid reports that companies are cutting investment in response to the UK energy price tax.

The British economy returned to growth in January, after falling into recession in the last quarter of 2023, adding 0.2 percent thanks to growth driven by retail sales in the services sector.

Construction output rose 1.1 percent on the month, while the UK’s huge services sector added 0.2 percent, but overall growth was dragged down by a 0.2 percent drop. in the production sector.

The manufacturing sector also fell 0.2 per cent in the three months to January, dragged down by a 3.3 per cent drop in mining and quarrying activity, which the ONS said was “mainly due to the decline in extraction of crude oil and natural gas” in the midst of a widespread crisis. fall of the subsector.

Mine and quarry production is now estimated to be 19.3 percent below its January 2022 level, thanks in large part to a decline in crude oil and natural gas extraction.

Separate data from the Department of Energy Security and Net Zero cites that “reduced investment” in the mature North Sea basin drove production to its lowest level since 1999 in the third quarter of 2023.

In the third quarter of 2023, total production was 23.2 million tons of oil equivalent, down 8 percent from the third quarter of 2022 and almost 40 percent below pre-pandemic levels, while production gas fell 13 percent.

The Government has been trying to safeguard energy security by granting “hundreds” of new oil and gas licences, while regulators also approved the new Rosebank development in the North Sea last year.

Production fell largely as a result of the ongoing decline in mining and quarrying, which is further dragged down by reduced oil and gas production.

Mining and quarrying have been in decline throughout the 21st century.

UK oil and natural gas production has gradually fallen since the pandemic despite resilient demand.

But the introduction in 2022 of Britain’s energy price tax, which Chancellor Jeremy Hunt confirmed last week would be extended until March 2029, has contributed to a sharp drop in investment in the North Sea.

The Energy Price Tax is a 75 percent tax on the profits of North Sea producers, applied at a time of rising domestic energy prices following the Russian invasion of Ukraine.

Harbor Energy, Britain’s largest North Sea oil producer, has notably chosen to diversify its investments abroad after seeing its annual profits virtually disappear for two consecutive years.

Nicholas Hyett, investment manager at Wealth Club, said: “The Chancellor’s recent decision to extend a windfall tax to UK oil and gas producers is unlikely to do many favors for a sector that has been in trouble. decline since at least the late 1990s, further discouraging investment in What is a mature oil field?

Oil remains the UK’s largest source of energy.