This week saw the European Commission’s President, Ursula von der Leyen, do something that would have probably been considered the opposite of democracy just a few years ago. She proposed that governments impose a ceiling on certain energy producers’ revenues and add a windfall profit for Big Oil majors.
Called “a solidarity contribution” or “a crisis contribution”, the windfall tax’s aim is the same as the aim of the revenue ceiling: manage energy costs in a runaway inflation environment and get some additional money to, according to the plan, distribute among those who most need it.
Like all grand plans, however, unintended consequences abound with this one, and one of the gravest is the discouragement of oil and gas investments at a time when global oil and gas investments are already lower than they should be in light of demand projections.
JP Morgan’s head of global energy strategy said it this week in an interview with Bloomberg.
“If you’re planning your capital budget, you have to think twice now that you have a new risk”, Malek told Bloomberg.
“It encourages majors to return cash to shareholders as they use that free cashflow that could have been used in investment”.
Per plans, the EU seeks to “raise” some $140 billion from windfall taxes on non-gas electricity generators and oil gas, and coal companies for their “extraordinary record profits benefiting from war and on the back of consumers,” to quote Von der Leyen.
Reaction from the industry was swift: Austria’s OMV said the consequences of such measures could be huge, adding that it was unfair to base the windfall levy proposal on oil companies’ profits from the last three years since these were not normal times, Reuters reported, quoting CEO Alfred Stern.
“We will keep an eye on that, as it can already have a massive impact”, Stern told media, noting, however, that the exact impact was difficult to glean because the proposal has yet to be fleshed out.
Per von der Leyen’s State of the Union speech, in which she listed the windfall tax among measures to cope with the energy crisis, the idea is to tax oil and gas companies with 33 percent of any current-year profits that were 20 percent above the company’s average earnings for the last three years.
OMV’s Stern noted that the last three years included two pandemic years when a lot of companies in the oil and gas industries struggled to stay afloat, let alone post a profit, with oil prices falling as low as $25 per barrel.
“Major oil, gas and coal companies are also making huge profits. So, they have to pay a fair share – they have to give a crisis contribution”, the European Commission’s President said in her speech.
If what JP Morgan’s Malek predicts is correct, this would mean less energy security for the future with less new oil and gas production outside Russia.
The key, Malek told Bloomberg, was whether the levy would stay for years or be quickly removed once the money was raised.
“It’s not the absolute number, it’s the uncertainty, the unpredictability of this,” he said. “There’s a risk this becomes recurring.”
Von der Leyen has assured the audience of her speech that the additional taxes were “all emergency and temporary measures,” adding that for long-term energy security, the EU needed to reduce its energy consumption.
Reuters noted in its report on OMV’s reaction to the speech that, according to analysts, the most likely targets of the new tax would be refiners in Europe since there is little upstream activity going on in the EU.
Yet integrated energy companies have integrated policies, and an additional tax on European refining may well have an impact on future plans for operations in, say, the Gulf of Mexico.
It’s worth noting that, at the moment, the windfall tax is only a proposal. It is certainly a proposal that comes from a high place, but it has yet to be approved by all EU members. According to an FT report on the topic, not all are on board with all the measures.
The report also quoted S&P Global’s Executive Director for Gas Industry in EMA, Laurent Ruseckas, as saying that the proposals put forward by Von der Leyen were “all extraordinarily complex” and “would be impossible to work out and implement in time for winter, even if there were political consensus behind them — which there isn’t.”
“It makes sense to agree to EU-wide targets and measures, but without allowing national flexibility on how to get there, we risk breaking the markets we’re trying to fix,” a European diplomat told the FT.
All this suggests that Big Oil might yet avoid the additional levy, although given its reputation as the Big Bad in climate change, the additional levy on the industry might be the only measure to receive wide support.
By: Irina Slav
Slav reports for Oilprice.com
NSCDC Parades Five Suspects Over 24,000 Litres Of AGO
The Nigeria Security and Civil Defence Corps (NSCDC) last Friday paraded five suspected oil thieves caught with over 24,000 litres of illegally refined Automotive Gasoline Oil (AGO) concealed in sack bags in Rivers State.
Rivers State Commandant of NSCDC, Michael Besong Ogar, while parading the suspects, reiterated that there was no room for illegal oil bunkering activities in Rivers State, warning that perpetrators would be smoked out of their hideouts.
Ogar said the newly-reconstituted anti-vandal team has made successes in the relentless war against vandalism of oil pipelines and illegal dealings in petroleum products through massive arrests and subsequent prosecution of cases in the court.
“The Commandant General, Ahmed Abubakar Audi, has promised that in a short while there would be a drastic reduction and possible eradication of illegal dealings in petroleum products across the nation
“Our major task is to massively arrest oil pipelines vandals and their sponsors as we take the Anti-vandalism war to the enemies’ domain.
“The nation is losing millions of dollars per barrel due to the increase in pipelines vandalism and illegal oil bunkering, but I can assure you that this menace would be a thing of the past because we are fully committed to the mandate of the Corps’ in safeguarding all critical national assets and infrastructures.
“The suspects will be charged for contravening the Anti-sabotage Act, the Petroleum Act and the Miscellaneous offences Act 2004, laws of the Federation.
“They are: Ifegbu Uche ‘m’ aged 42years, Obinna Ogbonna ‘M’ 42years, Emmanuel Smart ‘m’ 19 years, Lawrence Gibson ‘m’ 35years, and Emeka Desmond ‘m’ 35years, who were arrested while conveying about 24,000 litres of illegally refined AGO concealed in sack bags and carefully packed in a Toyota Sequoia with plate number AbujaGWA386GVA; a Volkswagen Bus with Registration Number: Lagos APP 831 XX, which was intercepted at Abuloma Community in Port Harcourt, a Truck DA1700 with number plate KadunaXE653KA impounded at Abonnema Wharf, and a Ford E- 250 intercepted in Etche respectfully.
“We also intercepted and impounded another short white Mercedes truck with unquantified litres of illegally refined AGO along Ozuoba-Rumuigbo axis in Obio/Akpor LGA, Port Harcourt Rivers State.
“We are very excited that the court has resumed session as the suspects would definitely have their time in Court while application for forfeitures of the products and mode of conveyance would be made and proceeds be remitted in the Federal Government coffers,” NSCDC said.
Eni Decries Production Loss From Bayelsa Gas Pipeline Explosion
Eni, the Italian parent company to the Nigerian Agip Oil Company (NAOC), has said the impact of the Ogboinbiri/OB-OB gas pipeline explosion on gas output was significant.
Production data from NAOC shows that the incident cut Agip’s gas exports by 5million standard cubic meters per day.
Media Relations Manager, in charge of African Operations at Eni, Mr Domenico Spins, said the gas leak has been brought under control.
Spins in a statement announced that the incident was caused by sabotage and third-party interference.
“Eni confirms that a third party’s interference hacksaw cut caused a gas leak at the Ogbainbiri-Ob/Ob gas pipeline.
“The line is depressurised and is currently being repaired. Production losses due to the shutdown are important,” Eni stated.
The Director-General of the National Oil Spills Detection and Response Agency (NOSDRA), Dr Idris Musa, who confirmed the pipeline blast, said the agency would lead an investigation into the incident as soon as it is safe to do so.
NOSDRA had also directed NAOC to shut down the oil and gas wells feeding the breached pipeline to extinguish the pressure and pave the way for a Joint Investigative Visit.
FG Confiscates 20m Litres Of Illegally Refined AGO
The Federal Government says the continued efforts by security agencies has led to the confiscation of over 20.2million litres of illegally refined Automotive Gasolme Oil (AGO), otherwise known as diesel.
Minister of Information and Culture, Lai Mohammed, disclosed this in Port Harcourt while carrying out an aerial survey of illegal refinery sites and hotspots along the Nembe Creek Trunk Line and the Trans-Niger Pipelines’ right of way on Friday.
Mohammed said over 210 suspects have been arrested in its efforts to combat crude oil theft in the Niger Delta region, lamenting that the activities of vandals and economic saboteurs have severely impacted the country’s crude oil production.
The Minister said over 461,000 litres of Premium Motor Spirit, 843,000 litres of Dual-Purpose Kerosene, and 383,000 barrels of crude oil have also been confiscated.
He said an additional 365 illegal refining sites were destroyed, with about 1,054 refining ovens, 1,210 metal storage tanks, 838 dugout pits, and 346 reservoirs also destroyed.
“Since the post-covid pandemic recovery of crude oil prices, Nigeria has been unable to meet its OPEC Production quota, hurting the Nigerian economy.
“Due to the nefarious activities of vandals, Nigeria has been losing out on producing approximately 700,000 Barrels of oil daily. This volume is split between crude stolen and production deferment (shut-ins) due to legitimate fear of losing substantial volumes in transit.
“Terminal receipts have persistently declined, leading to decisions such as the Force Majure declared at the Bonny Oil and Gas Terminal in March 2022,” he said.
The Minister also disclosed that the NNPC Ltd had set up a new security architecture to serve as a solid response to detect, deter, and respond to the activities of vandals.
He said the security architecture leveraged collaboration between the Upstream operators, Industry Regulators, Government Security Agencies, and Private Security Contractors.
He further said NNPC Ltd.’s Command and Control Centre has been set up for round-the-clock monitoring of petroleum operations and activities within the Nigerian Exclusive Economic Zone.
According to him, all vessel movements within the Nigerian Exclusive Economic Zone as well as all Ship-to-ship activities within the same zone are now monitored.
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