BP’s profits for the first quarter of 2022 have more than doubled compared to the same period last year after oil and gas prices have soared. Their profits reached $6.2 billion, compared to $2.6 billion last year, far exceeding expectations.
These profits have been driven by a sharp rise in oil prices, to which there have been various contributing factors. Initially, the increased demand from reopening economies after the easing of Covid lockdowns led to increasing prices, however this was only exacerbated by the Russian invasion of Ukraine and the subsequent western sanctions on Russia. Russia is the second largest exporter of crude oil, and the world’s largest natural gas exporter.
These significant increases in energy prices have led to calls for a one-off windfall tax on energy companies that have benefitted from these rising prices. It is argued that such a tax would help with the cost-of-living crisis that households across the UK are currently facing, with inflation projected to potentially hit 10%. Similar measures have been introduced in Spain as well as Italy, where the Italian government has said it will increase its tax on energy companies’ windfall profits from 10% to 25%.
Will there be a windfall tax?
With many people struggling to pay their increased energy bills after the energy price cap rise earlier this year, opposition parties have been united in their call for a windfall tax. However, the Prime Minister has been decidedly against such a policy, saying to ITV that “if you put a windfall tax on the energy companies, what that means is you discourage them from making the investments that we want to see that will, in the end, keep energy prices lower for everybody”.
Chancellor Rishi Sunak has previously said he was open to exploring a windfall tax policy in the event that companies did not invest enough in the UK’s energy supply.
In an effort to stave off calls for a windfall tax, BP announced its plans to invest £18 billion in green and fossil fuel operations in the UK by the end of the decade. Commenting on this, BP Chief Executive Bernard Looney said: “We’re backing Britain. It’s been our home for over 110 years, and we’ve been investing in North Sea oil and gas for more than 50 years. We’re fully committed to the UK’s energy transition – providing reliable home-grown energy and, at the same time, focusing on the drive to net zero.”
So far these announcements have seemed to have played down industry concerns of a windfall tax. Though the announcements merely add together investments that were already planned, they were welcomed by Business Secretary Kwasi Kwarteng and the Prime Minister.
However it is unlikely that this will be the end of the debate. With Shell set to announce even higher profit numbers later this week for its first quarter, the political pressure is unlikely to relent any time soon, particularly with the planned increased to the energy price cap in October.