Oil and gas giant Shell has reported its highest ever annual profits after energy prices surged last year following Russia’s invasion of Ukraine.
After energy prices soared last year as a result of Russia’s invasion of Ukraine, oil and gas company Shell announced record yearly earnings.
Profits doubled from the prior year to reach $39.9 billion (£32.2 billion) in 2022, the greatest level in the company’s 115-year existence.
Since the rise in oil and gas prices following the invasion of Ukraine, energy companies have experienced unprecedented profits.
As individuals struggle with growing costs, pressure has been put on businesses to pay more in taxes.
According to opposition parties, Shell’s profits were “outrageous” and the government was “letting off the hook” energy companies. They demanded the cancellation of the scheduled hike in the energy price cap that was set to take effect in April.
After the Covid lockdowns ended, energy costs started to rise, but they spiked in March of last year as supply concerns arose as a result of the events in Ukraine.
Following the invasion, the price of Brent crude oil rose to about $128 per barrel, but has subsequently dropped to roughly $83. Gas prices also increased, but they have since declined from their peaks.
Energy firms have made huge profits as a result, but it has also contributed to an increase in family and commercial energy costs.
The UK government implemented the Energy Profits Levy last year as a windfall tax on businesses’ “exceptional” revenues to help pay for its plan to reduce gas and electricity costs.
Shell had previously stated that it did not anticipate paying any UK taxes this year despite the move because it is permitted to deduct decommissioning expenses and investments in UK projects from any UK profits.
However, it announced on Thursday that it will be required to pay $134 million in UK windfall tax in 2022 and would anticipate paying more than $500 million in 2023.
Although it might seem insignificant in comparison to its revenues, Shell only receives about 5% of its revenue from the UK; the remainder is generated and taxed in other countries.
However, detractors point out that Shell has its headquarters in the UK and has been paying out more dividends to its shareholders than it has been investing in renewable energy.
The disclosure has raised pressure on Jeremy Hunt and Rishi Sunak to expand money-raising from oil and gas profits.
An official from Downing Street said that they “completely” comprehend the outrage over the “exceptional” gains, but claimed there are no plans to raise the windfall tax.
When challenged by reporters, the prime minister’s spokeswoman responded that inquiries regarding potential revisions were “for the chancellor.”
The official continued without mentioning any specific actions that would be taken, only saying that the government is “ready to take action” if reduced wholesale energy costs don’t translate into lower gas prices.
Currently, the government is capping gas and electricity costs at £2,500 per year for a household consuming an average amount of energy.
The barrier is set to increase to £3,000 in April, although that is still more than twice what it was prior to Russia’s invasion.
Profits from UK oil and gas extraction are the only profits subject to the government’s windfall tax. Although it was initially established at 25%, the rate is currently 35%.
In addition, oil and gas companies must pay an additional 10% in addition to the 30% corporation tax on their income. That raises their overall tax rate to 75% when combined with the new windfall tax.
However, by accounting for losses or spending money on things like decommissioning North Sea oil platforms, businesses can lower the amount of tax they pay. It has meant that energy behemoths like BP and Shell have recently paid little or no tax in the UK.
The annual profit number was far higher than Shell’s prior record, which was established in 2008. The business also disclosed that it had paid out $6.3 billion to shareholders in the final three months of 2022 and that it had plans to repurchase $4 billion worth of shares.
These are “very challenging times – we are seeing inflation rampant over the world,” according to Shell CEO Wael Sawan, but Shell is doing its part by investing in renewable technologies.
According to Shell’s chief financial officer Sinead Gorman, the company paid $13 billion in taxes worldwide in 2022. Additionally, it has contributed 11% of the liquified natural gas imports into the EU, relieving supply constraints brought on by sanctions on Russia.
Ed Miliband, the opposition climate change secretary for Labour, said: “The government is abdicating its responsibility by failing to enact a proper windfall tax, even as the British people will experience a 40% energy price increase in April.
Because it is only fair that the businesses reaping unforeseen windfall profits from war spoils pay their fair part, Labour would prevent the energy price cap from increasing in April.
Leader of the Liberal Democrats Ed Davey said: “No business should be profiting so outrageously from Putin’s unlawful invasion of Ukraine.
“They must fairly tax the oil and gas industries and, at the absolute least, take steps to prevent an increase in energy prices in April.”
Paul Nowak, general secretary of the TUC, urged officials to enact a higher windfall tax and stated that “the time for excuses is done.”
“Ministers should be making big oil and gas pay their fair share,” he continued, “instead of keeping down the salary of paramedics, teachers, firefighters, and millions of other struggling public servants.”