The new boss of Shell has said he would 'think twice' about investing in the North Sea and that America is now significantly more attractive than Britain for energy investment
In a wide-ranging weekend interview with The Times, Shell chief executive Wael Sawan said the UK Government should “take a page from some of the things that the US have done recently, through the Inflation Reduction Act”, a $369 billion package of subsidies to spur green investment in America.
Windfall taxes, planning delays and uncertainty over subsidies were all making it harder for Shell to achieve its goal of investing up to £25billion in the UK this decade, he said.
By contrast, in America the Inflation Reduction Act was providing “ten-year clarity and tangible, fixed incentives that people know to bank on”.
US more attractive
Asked how Britain ranked in terms of attractiveness for energy investments, he said the US was “ahead significantly” and that Europe was also ahead of Britain.
Sawan said that he would “think twice about investing in more oil in the UK” as there were “more attractive locations right now”, such as the US Gulf of Mexico.
The energy profits levy, which has increased the tax rate in the North Sea from 40 to 75%, was “fundamentally disincentivising the investment in new supplies which are critical if you want to build energy security for the long term”.
Volatility and delay
Mr Sawan said that the UK had seen more windfall taxes and fiscal changes during his 25-year tenure at Shell than most other countries, and this affected the wider investment climate.
“When you have such volatility, it fundamentally saps your conviction around your ability to be able to see the returns that are required on that investment, and therefore you move your capital to the areas where you see healthy returns at lower risk,” he said.
Mr Sawan also expressed frustration at the amount of time it takes to get wind energy schemes live in Scotland.
Shell wants to develop the world’s first commercial-scale floating wind farm off Scotland but “will only be able to entertain start-ups in the 2030s because of significant permitting requirements and the like," he said.
Cutting production 'not healthy'
Meanwhile, Mr Sawan said that he would give further guidance on its oil production outlook at a capital markets day in June.
The comments suggest that Shell is poised to follow its smaller rival BP in rowing back on its output decline plans.
BP last month abandoned its pledge to cut its oil and gas output by 40% this decade, in favour of a 25% reduction, leading to a rally in its shares.
“We’ve seen, of course, through 2022 the fragility of the energy system when we starve it of the supply that is required — you’ll see prices start to skyrocket, and that’s not healthy for anyone, in particular consumers," he said.