Sanjoy Sen is a chemical engineer. He contested Alyn and Deeside in the 2019 general election.
Chris Skidmore, author of last year’s Net Zero review, has announced his resignation over future oil & gas licenses, prompting yet another by-election.
In the wake of his decision, it might be worth reflecting on how material those licenses are likely to prove. And what impact continued fossil fuel investment can have on the energy transition. Moreover, is climate leadership still even a thing?
Are new North Sea licenses a big deal?
The death knell for the North Sea has been sounded many times before: it’s remarkable there’s still an industry left to issue licenses for. As a 1980s schoolkid, I learned it would be all be over by the millennium. Instead, I began my oil & gas career in the year 2000 and output peaked then at 4.5 million barrels of oil equivalent per day. (That’s a metric that combines oil and gas production.)
But after half a century of extraction, daily output is sub-1.5 million and falling. By 2022, the UK accounted for just 0.8 per cent of global oil output and ranked twentieth amongst world producers. The occasional major find (such as 2022’s Tolmount) slows the natural decline, but much of our remaining reserves are thinly dispersed across marginal discoveries. These may never prove viable.
New offshore developments, especially Rosebank, are highly controversial amongst environmentalists. But as a net importer, cancelling future licenses just drives up imports, especially of energy-intensive LNG. That risks increasing emissions, not reducing them. (And whilst Labour are quick to criticize Qatar on human rights grounds, curtailing domestic production only increases our dependence on their output.) Appeasing protestors doesn’t necessarily deliver the outcomes they demand.
Issuing new licenses will neither spark another oil boom nor send emissions sky-rocketing. But developing our remaining reserves does create employment opportunities and generates much-needed tax revenues as we transition to alternatives. Rosebank developer’s Equinor estimates over £8 billion in investment and hundreds of jobs. And, post-Ukraine, we are re-learning that energy security matters: every barrel produced here is potentially a barrel we don’t need to import.
Does new oil hold back green investment?
Here in the UK, hydrocarbon production and green investment have proceeded simultaneously in recent years with companies including bp covering both bases. Over 40 per cent of our electricity came from renewables in 2023 and we have only just been overtaken by China in offshore wind capacity. Oil & gas is even supporting transition technologies via hydrogen and carbon capture and storage (CCS). And thanks to government incentives, British consumers are embracing the future via electric vehicles (15 per cent market share in 2023) and even solar panels (yes, despite a lowly 10 per cent load factor in our grey, northern skies).
It’s a similar story but more so across the North Sea, where Norway’s oil & gas output is double ours. The Norwegians, already blessed with abundant hydro power, are now going large on wind with output destined for export and even to their own oil platforms. And thanks to highly generous (perhaps counter-productive) incentives covered by oil revenues, it is now world number one in EV take-up.
The USA, whilst still enjoying a shale oil fracking boom, is also installing renewables at pace. EV sales are surging as the ‘big three’ (Ford, GM, Chrysler) scramble to catch up with Musk’s upstart Tesla. Even Saudi Arabia, clearly in no rush to turn off the oil taps, is finally starting to make good on its vast solar and wind potential. Oil and renewables investment are not necessarily the either-or that many imagine.
Leading on the Climate
Skidmore’s resignation letter wasn’t the first reference to the UK’s climate leadership. Others, from John Debden to Ed Miliband, have previously voiced similar concerns. But, in reality, countries have always been making their own decisions. And doing so in their own interests.
China and India have vast coal reserves which will continue to form a major part of their energy mix for years to come: they will decarbonise on their own terms, if at all. And whilst western nations are pumping billions into Ukraine’s war effort, the two Asian giants have been ramping up Russian crude imports, taking advantage of significant discounts. They’re unlikely to be awaiting guidance from UK and European leaders who were plunged into an energy crisis last winter.
Better perhaps to demonstrate leadership in green technologies and generate global business opportunities. Skidmore’s Net Zero review emphasised the importance of backing research and development and noted Small Modular (nuclear) Reactors are a sector where we could take a lead in exports: Rolls-Royce envisages 40,000 UK jobs and injecting £52 billion into our economy. The UK is also taking a lead in exportable technologies from CCS to floating offshore wind.
Meanwhile, back in the North Sea, mature fields (including Brent, Ninian, Murchison) are now in a £20 billion decommissioning phase, requiring hefty tax relief for big oil – not a good look. And an offshore taxation regime that is currently high (75%) and historically unpredictable is looking increasingly problematic. Dropping the windfall tax would be unpopular, but retaining it risks stifling future development, including the controversial Cambo field. Despite current headlines, much greater challenges than licensing await.
Sanjoy Sen is a chemical engineer. He contested Alyn and Deeside in the 2019 general election.
Chris Skidmore, author of last year’s Net Zero review, has announced his resignation over future oil & gas licenses, prompting yet another by-election.
In the wake of his decision, it might be worth reflecting on how material those licenses are likely to prove. And what impact continued fossil fuel investment can have on the energy transition. Moreover, is climate leadership still even a thing?
Are new North Sea licenses a big deal?
The death knell for the North Sea has been sounded many times before: it’s remarkable there’s still an industry left to issue licenses for. As a 1980s schoolkid, I learned it would be all be over by the millennium. Instead, I began my oil & gas career in the year 2000 and output peaked then at 4.5 million barrels of oil equivalent per day. (That’s a metric that combines oil and gas production.)
But after half a century of extraction, daily output is sub-1.5 million and falling. By 2022, the UK accounted for just 0.8 per cent of global oil output and ranked twentieth amongst world producers. The occasional major find (such as 2022’s Tolmount) slows the natural decline, but much of our remaining reserves are thinly dispersed across marginal discoveries. These may never prove viable.
New offshore developments, especially Rosebank, are highly controversial amongst environmentalists. But as a net importer, cancelling future licenses just drives up imports, especially of energy-intensive LNG. That risks increasing emissions, not reducing them. (And whilst Labour are quick to criticize Qatar on human rights grounds, curtailing domestic production only increases our dependence on their output.) Appeasing protestors doesn’t necessarily deliver the outcomes they demand.
Issuing new licenses will neither spark another oil boom nor send emissions sky-rocketing. But developing our remaining reserves does create employment opportunities and generates much-needed tax revenues as we transition to alternatives. Rosebank developer’s Equinor estimates over £8 billion in investment and hundreds of jobs. And, post-Ukraine, we are re-learning that energy security matters: every barrel produced here is potentially a barrel we don’t need to import.
Does new oil hold back green investment?
Here in the UK, hydrocarbon production and green investment have proceeded simultaneously in recent years with companies including bp covering both bases. Over 40 per cent of our electricity came from renewables in 2023 and we have only just been overtaken by China in offshore wind capacity. Oil & gas is even supporting transition technologies via hydrogen and carbon capture and storage (CCS). And thanks to government incentives, British consumers are embracing the future via electric vehicles (15 per cent market share in 2023) and even solar panels (yes, despite a lowly 10 per cent load factor in our grey, northern skies).
It’s a similar story but more so across the North Sea, where Norway’s oil & gas output is double ours. The Norwegians, already blessed with abundant hydro power, are now going large on wind with output destined for export and even to their own oil platforms. And thanks to highly generous (perhaps counter-productive) incentives covered by oil revenues, it is now world number one in EV take-up.
The USA, whilst still enjoying a shale oil fracking boom, is also installing renewables at pace. EV sales are surging as the ‘big three’ (Ford, GM, Chrysler) scramble to catch up with Musk’s upstart Tesla. Even Saudi Arabia, clearly in no rush to turn off the oil taps, is finally starting to make good on its vast solar and wind potential. Oil and renewables investment are not necessarily the either-or that many imagine.
Leading on the Climate
Skidmore’s resignation letter wasn’t the first reference to the UK’s climate leadership. Others, from John Debden to Ed Miliband, have previously voiced similar concerns. But, in reality, countries have always been making their own decisions. And doing so in their own interests.
China and India have vast coal reserves which will continue to form a major part of their energy mix for years to come: they will decarbonise on their own terms, if at all. And whilst western nations are pumping billions into Ukraine’s war effort, the two Asian giants have been ramping up Russian crude imports, taking advantage of significant discounts. They’re unlikely to be awaiting guidance from UK and European leaders who were plunged into an energy crisis last winter.
Better perhaps to demonstrate leadership in green technologies and generate global business opportunities. Skidmore’s Net Zero review emphasised the importance of backing research and development and noted Small Modular (nuclear) Reactors are a sector where we could take a lead in exports: Rolls-Royce envisages 40,000 UK jobs and injecting £52 billion into our economy. The UK is also taking a lead in exportable technologies from CCS to floating offshore wind.
Meanwhile, back in the North Sea, mature fields (including Brent, Ninian, Murchison) are now in a £20 billion decommissioning phase, requiring hefty tax relief for big oil – not a good look. And an offshore taxation regime that is currently high (75%) and historically unpredictable is looking increasingly problematic. Dropping the windfall tax would be unpopular, but retaining it risks stifling future development, including the controversial Cambo field. Despite current headlines, much greater challenges than licensing await.