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2022 OUTLOOK

Stage set for tougher fiscal terms for upstream operators in 2022

Fiscal policies could start to catch up with energy transition goals this year. Read 'Global upstream fiscal systems: 5 things to look for in 2022' for our view on the policy changes that could be in store.

What’s inside the full report?

  • Carbon pricing and decarbonisation: the stage is set, time for action?
  • Holistic taxation – a potential win-win for investors and governments?
  • An uncertain future for licensing rounds and fiscal predictability
  • Another turn on the fiscal rollercoaster
  • Decommissioning funding rules must tighten

This time last year, we were speculating that tougher fiscal terms could be on the horizon. Policymakers faced a difficult balancing act: after a year of economic disruption, governments needed to weigh support for the upstream sector against energy transition goals.

But despite 2021 being a year of intense decarbonisation discussions and rampant oil and gas prices, we saw very few fiscal responses at all.

Will 2022 be the year that fiscal policies begin to catch up with the rhetoric? And will governments show what they are prepared to do to influence the energy transition in their country?

Fill in the form to read Global upstream fiscal systems: 5 things to look for in 2022 in full. Or read on for a brief introduction to the changes that could be in store.

Time for action on carbon pricing?

One of COP26’s main achievements is the agreement of rules to underpin a global carbon credit market. With the introduction of carbon border adjustment mechanisms, this will increase the likelihood of carbon pricing in upstream operations.

Only Norway and Canada currently impose significant carbon taxes on producers, although the impact can be heavily diluted via deductions against other taxes.

What role could fiscal incentives play in encouraging oil and gas producers to cut emissions? And what will governments need to consider when implementing carbon pricing? Read the full report to find out more.

Could 2022 herald a shift in upstream licensing policies?

Licensing rounds soared in popularity in the 2010s as demands for transparency in licensing processes increased.

When prices were high, or blocks with extraordinary geological potential were offered, multiple investors would bid aggressively to acquire the acreage. This resulted in huge signature bonuses and offers of high royalty, tax, or profit share rates for governments.

Spurred by these successes, many countries launched new rounds. But lower prices, less exciting prospects and overly optimistic fiscal terms often condemned these to flop, causing cost and embarrassment to the host governments. And in the past few years, many rounds have been delayed or even cancelled.

Will we see the beginning of the end for licencing rounds in 2022? And if so, how will countries negotiate fiscal terms for new and existing acreage? Read the full report to find out more.

Could holistic taxation encourage renewable energy?

Decarbonising oil and gas operations could be combined with development of the renewable power sector. Replacing gas-fuelled power generators with renewable sources will clean upstream operations and appeal to buyers that are attracted by carbon-neutral cargoes.

Renewable power linked to oil and gas projects can be expanded to supply the local grid and this could be incentivised through taxation mechanisms. But there will be significant opposition to any kind of incentive for oil producers from activists, pure renewable energy companies and others. It is a policy option, however, and may generate some discussion in 2022.

Where else might governments implement changes to fiscal policy as they respond to decarbonisation pressures? And what other themes will we be tracking closely in the year ahead? Read Global upstream fiscal systems: 5 things to look for in 2022 to find out more.

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2022 Outlook

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