UK's High Taxation Makes Imported Gas Cheaper Than Domestic Supplies

The production cost of new North Sea gas has increased significantly due to high taxation and uncertainty over future policy, making it cheaper for the UK to import liquefied natural gas (LNG) from the US than to develop domestic supplies. According to analysis by Thunder Said Energy, the break-even price for new North Sea developments has climbed to around $13.50 per thousand cubic feet (MCF), up from about $7.

This figure includes as much as $3.50 per MCF for the underlying US gas, and the cost of transporting it across the Atlantic. By comparison, producing US gas, converting it into LNG, and shipping it to Europe requires a break-even price of only around $8-$9 per MCF.

Analysts blame the 'totally crazy' oil and gas windfall tax regime for damaging the economics of new North Sea developments. The Energy Profits Levy has raised an effective 78% headline tax rate on profits, while the levy has also been extended from 2028 until 2030.