ExxonMobil sued the EU to overturn its windfall tax on oil companies. Brussels is accused of being overreaching its legal rights with the “counterproductive” policy.
The US oil giant filed a lawsuit against the European General Court to stop the new levy. It is expected that it will raise EUR25bn (£22bn).
ExxonMobil claims the EU measure and other tax windfalls imposed by European governments could cause ExxonMobil to lose $2bn in investments in Europe’s energy supply. This is just as Europe tries to diversify its sources of Russian energy.
This is the biggest challenge to windfall taxes in Europe and the UK that have been imposed to help keep their soaring bills down.
Politicians argue that oil and natural gas producers have made unwarranted and large-scale profits from the soaring oil prices, which were worsened by Russia’s invasion of Ukraine.
ExxonMobil is the largest private oil company in the world. A spokesperson for the company said that they recognize the impact of the European energy crisis on businesses and families. They have been working hard to improve the energy supply to Europe.
“Our challenge is only to the counter-productive windfall profit tax and not other elements of the package for reducing energy prices.
“This tax will reduce investor confidence, discourage investments, and increase dependence on imported fuel products and energy.”
The EU’s windfall tax is known as a “solidarity donation” and imposes a levy on fossil fuel companies. It amounts to around a third of the EU’s “excess profits for 2022-2223. This refers to profits that exceed 20pc in the three years prior to 2022.
The proceeds will be used by the member states to help households and businesses that are affected by high energy prices. The tax goes into effect on December 31.
ExxonMobil has a market capitalization of approximately $446bn and generated $276bn revenue in 2021 from oil-and-gas projects in 39 countries. Its European operations include oil production in Germany and Italy as well as refineries and ports in France, Germany and Italy.
It announced record quarterly profits in October, almost $20bn, despite rising gas prices. It announced earlier this month that it plans to return $50bn over the next two years to investors through share buybacks.
Exxon claims it has invested more than $3bn in European refining projects in the last ten years. This makes it one of the biggest investors in this sector.
It cautioned, however, that it was looking forward and assessing future multi-billion Euro investments into Europe’s energy supply transition and transition, it looked for strong business cases supported by a predictable and stable investment climate.
“Whether or not we decide to invest in Europe is largely dependent on how attractive and competitive Europe will be global.”
A spokesperson for the Commission stated that the tax would ensure that all sectors of the energy industry pay their fair share in difficult times. This is to help address the extraordinary energy crisis caused by Russia’s weaponization of the energy supply.
They also stated that “The Commission maintains the measures in question are fully compatible with EU law.”
This legal case could derail an important plank in Brussels’ efforts to address the cost of living crisis. The UK will closely monitor the situation.
British windfall taxes have caused anger among North Sea oil and natural gas producers. They raised their total tax rate from 40pc up to 75pc.
Harbour Energy, North Sea’s largest producer has stated that it will not participate in the current North Sea licensing round due to the tax. However, rival Total said it would cut investment by one-quarter next year.
Oil prices fell after soaring in the wake of Russia’s invasion of Ukraine at the beginning of the year. They are now below their pre-invasion levels. On Wednesday, prices fell as traders worried about China’s latest wave of coronavirus cases. These new cases could reduce demand as the restrictions loosen.
Brent crude oil fell by 1.8 percent or $1.53 to $83.80/barrel on Wednesday. The US benchmark was down by 1.6 percent to $78.22/barrel last night.
Despite Russia’s threats to ban crude oil sales starting February 1, buyers who observe a price limit on Urals crude oil imposed by Western countries saw the declines.
“The pushback does not surprise, some kind of retaliation was expected since the price cap was announced,” stated Alan Gelder, Wood Mackenzie’s oil market expert.
According to Mr Gelder, the reason why Moscow’s oil ban didn’t get a strong reaction was partly because of “the vague wording.”
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