Like all grand plans, however, unintended consequences abound with this, and one of the most serious is discouraging oil and gas investment at a time when global oil and gas investment is already lower than it would otherwise be. had to in light of demand forecasts. JP Morgan’s head of global energy strategy said as much 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 big companies to return cash to shareholders as they use that free cash flow that could have been used in investments.” Under plans, the EU seeks to “raise” around $140 billion in windfall taxes on non-gas electricity and oil generators and coal companies for “extraordinary record profits profiting from war and on the backs of consumers”, it says von der. Leyen. “We will be watching this as it could already have a huge impact,” Stern told the media, noting however that the exact impact was difficult to glean because the proposal has yet to be spelled out. According to von der Leyen’s State of the Union address, in which she listed the windfall tax among measures to tackle the energy crisis, the idea is to tax oil and gas companies at 33% of this year’s profits which was 20 percent above the company’s average earnings over the past three years. OMV’s Stern noted that the past three years included two pandemic years when many companies in the oil and gas industries struggled to stay afloat, let alone turn a profit, with oil prices falling as low as $25 a barrel . “The big oil, gas and coal companies are also making huge profits. So they have to pay a fair share – they have to contribute to the crisis,” the President of the European Commission said in her speech. If what JP Morgan’s Malek predicts is correct, it would mean less energy security for the future with less new oil and gas production outside of Russia. The key, Malek told Bloomberg, was whether the levy would remain in place for years or be phased out quickly once the money was raised. “It’s not the absolute number, it’s the uncertainty, the unpredictability,” he said. “There is a risk of this happening again.” Von der Leyen assured her speech audience that the additional taxes were “all emergency and temporary measures”, adding that for long-term energy security, the EU needed to reduce energy consumption. Reuters noted in its report on OMV’s reaction to the speech that analysts said the most likely targets of the new tax would be refineries in Europe, as there is little upstream activity in the EU. However, integrated energy companies have integrated policies and an additional tax on European refining may well have an impact on future plans for activities in, for example, the Gulf of Mexico. It’s worth noting that, right now, the windfall tax is just a proposal. It’s certainly a top-down proposal, but it hasn’t yet been approved by all EU members. According to an FT report on the matter, not everyone agrees with all the measures. The report also said that S&P Global’s executive director for the gas industry at the EMA, Laurent Ruseckas, said the proposals put forward by Von der Leyen were “all extremely complex” and “would be impossible to process and implement in time for the winter, even if there was a political consensus behind them — which there isn’t.” “It makes sense to agree EU-wide targets and measures, but without allowing national flexibility on how we get there, we risk breaking the markets we are trying to fix,” one European diplomat told the FT. All this suggests that Big Oil may yet avoid the additional levy, although given its reputation as the big bad on climate change, the additional levy on the industry may be the only measure to garner broad support.By Irina Slav for Oilprice.com More top reads from Oilprice.com:
