Would more North Sea drilling mean lower energy prices for UK consumers?

## Summary
Kemi Badenoch claims increased UK oil and gas production would cut bills by £200, but critics say plan won’t work Oil prices hit $100 a barrel soon after the US and Israel launched their attack on Iran, and though prices have wobbled since, ongoing supply issues from the partial closure of the strait of Hormuz mean they could leap higher, to $150 a barrel or more, by some estimates. Kemi Badenoch, leader of the Conservative party, this week laid out a plan to “get Britain drilling”, which would involve opening new oil and gasfields in the North Sea, to maximise production, alongside measures to cut energy bills. The logic appears rather convoluted, as the Tories also want to scrap one of the major sources of tax revenue: the windfall tax on North Sea producers , known as the energy profits levy, which was put in place by Rishi Sunak when Russia’s 2022 invasion of Ukraine sent fossil fuel prices soaring. North Sea oil and gas companies already enjoy large tax breaks , to encourage them to invest, and licensing new fields could lock in government assistance for companies for years to come.

## Article Content
Kemi Badenoch says removing the windfall tax put on oil companies after Russia’s 2022 invasion of Ukraine would stimulate production.
Photograph: Danny Lawson/PA
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Kemi Badenoch says removing the windfall tax put on oil companies after Russia’s 2022 invasion of Ukraine would stimulate production.
Photograph: Danny Lawson/PA
Explainer
Would more North Sea drilling mean lower energy prices for UK consumers?
Kemi Badenoch claims increased UK oil and gas production would cut bills by £200, but critics say plan won’t work
Oil prices hit $100 a barrel soon after the US and Israel launched their attack on Iran, and though prices have wobbled since, ongoing supply issues from the partial closure of the strait of Hormuz mean they could leap higher, to $150 a barrel or more, by some estimates.
The impacts could be severe – not just
increases in the price of petrol
, and oil for home heating, but also in the cost of gas, with knock-on inflationary pressures on food, consumer goods and industrial components.
Kemi Badenoch, leader of the Conservative party, this week laid out a plan to “get Britain drilling”, which would involve opening new oil and gasfields in the North Sea, to maximise production, alongside measures to cut energy bills. Here we look at this plan and whether it would work.
Would extracting more gas from the North Sea reduce oil and gas prices for the UK?
No. Badenoch, and Reform UK, have at several points suggested that more drilling could reduce prices, but
that is not the case
. Oil and gas are sold by private companies on international markets, which set the price, so there is no discount or advantage for UK consumers.
The Conservatives have acknowledged this in the past, and appear to be moving away from such claims. Badenoch’s new plan for drilling largely relies on tax reforms for energy bill reductions. According to the Tory leader, the increased tax revenue from oil and gas extraction, plus the removal of VAT on bills, and some smaller adjustments, would deliver £200 cuts to household energy bills.
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Kemi Badenoch visits the Well-Safe Protector Oil Rig at Aberdeen’s South Harbour.
Photograph: Murdo MacLeod/The Guardian
Will that work?
The logic appears rather convoluted, as the Tories also want to scrap one of the major sources of tax revenue: the
windfall tax on North Sea producers
, known as the energy profits levy, which was put in place by Rishi Sunak when Russia’s 2022 invasion of Ukraine sent fossil fuel prices soaring.
The windfall tax has raised about £12bn so far. As the charge is levied on the excess profits companies have made by receiving much higher prices for their products, while their cost base remained the same, the levy does not increase prices to consumers. Windfall taxes have the support of the
International Energy Agency
.
Badenoch says removing the windfall tax would stimulate production, though there is little evidence that it is inhibiting investment. With the levy, the marginal rate of tax on the UK’s North Sea is 78%, which is the same as Norway’s.
Bob Ward, the policy director at the Grantham Research Institute at the London School of Economics, called it “premature” to consider removing the tax, “with energy companies again set to make windfall profits and the possibility that the government may yet again have to spend taxpayers’ money to protect consumers”.
As for other tax revenues, it is true that they have increased as fuel prices have risen. One estimate this week had the government receiving £20m extra a day, though that does not take into account tax breaks that many companies receive.
These sums may seem large, but the government is also facing higher debt servicing costs and the impact of higher prices across the public sector, so the money is not exactly spare.
More importantly, if this cash were redirected back to consumers, it would have little impact on bills. A study published last month by the Smith School at the University of Oxford
found that households would gain only about £16 a year
if the tax revenues from a maximally exploited North Sea were redistributed, and if the windfall tax was removed. This was based on energy prices in January, but even the increase in prices since would not raise this figure substantially.
Badenoch also wants to remove VAT from energy bills, which critics have pointed out would be regressive, offering far more money to the rich, driving petrol-guzzling SUVs and heating large houses, than it would to the poor.
North Sea oil and gas companies
already enjoy large tax breaks
, to encourage them to invest, and licensing new fields could lock in government assistance for companies for years to come. The UK Energy Research Council
warned that new fields were likely
to be small and marginal projects “that depend on high prices for their profitability”, meaning they would “require state support, and increase
overall decommissioning costs
for the taxpayer”.
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## Expert Analysis

### Merits
- Oil and gas are sold by private companies on international markets, which set the price, so there is no discount or advantage for UK consumers.

### Areas for Consideration
- The scale of support needed to cushion consumers from price rises would be much greater than any increase in tax revenue from the North Sea, making for difficult choices.
- Even though we were just in an era of low price and oversupply, globally integrated fossil fuel markets leave all oil and gas consumers bracing for an inflation shock. “Renewables aren’t without risk – there are also solar panels stuck in Hormuz right now.

### Implications
- Kemi Badenoch claims increased UK oil and gas production would cut bills by £200, but critics say plan won’t work Oil prices hit $100 a barrel soon after the US and Israel launched their attack on Iran, and though prices have wobbled since, ongoing supply issues from the partial closure of the strait of Hormuz mean they could leap higher, to $150 a barrel or more, by some estimates.
- The impacts could be severe – not just increases in the price of petrol , and oil for home heating, but also in the cost of gas, with knock-on inflationary pressures on food, consumer goods and industrial components.
- Badenoch, and Reform UK, have at several points suggested that more drilling could reduce prices, but that is not the case .
- Photograph: Murdo MacLeod/The Guardian Will that work?

### Expert Commentary
This article covers gas, oil, energy topics. Notable strengths include discussion of gas. Areas of concern are also raised. Readability: Flesch-Kincaid grade 0.0. Word count: 2514.