Why will the new North Sea production not deliver UK energy security?

Sustainable leaders | Europe

By Fossil Free London, Freelance Collaboration

Published April 14th, 2022

On March 20th 2022, climate campaigners from Fossil Free London protested outside the Department for Business, Energy and Industrial Strategy (BEIS) against the continued expansion of oil and gas. To illustrate the issue, activists used a large oil barrel with a tiny windmill on top to represent the UK's over-reliance on fossil fuels. The demonstration came ahead of Rishi Sunak's Spring Statement on March 23rd 2022 and amid rising fuel prices, not to mention the Energy Security Strategy by the Prime Minister, which was published last week.

The recent surge in gas prices and Russia’s war in Ukraine have triggered an energy security crisis across Europe. In response, the UK Government has published an Energy Security Strategy in a bid to secure the UK’s energy supplies and reduce costs for households and industry.

‘There is NO future in oil!’ Fossil Fuel campaigners gathered outside BEIS. The energy security strategy today should have said ‘no more.’ | Camille Aboudaram/ Fossil Free London

Plans to increase North Sea production were included in the strategy, with the Prime Minister recently meeting with representatives from the oil and gas industry to discuss increasing investment in the North Sea. However, the North Sea energy production increase might not lower UK household bills, with Business Secretary Kwasi Kwarteng confirming that ‘additional North Sea production will not materially affect the wholesale price.’

The UK does not primarily face an energy shortage, but rather a crisis of affordability. High gas prices mean household energy bills will rise 54% from next month, leading to a predicted six million households facing fuel poverty. The ongoing war in Ukraine could push these prices even higher with the Office for Budget Responsibility suggesting that bills could hit an unaffordable £2800 in the Autumn. More than 14 million householdsーone in four adultsーwill be unable to afford their bills in October if gas and electricity bills rise as predicted, according to the charity Citizens Advice.

‘More than 14 million householdsーone in four adultsーwill be unable to afford their bills in October if gas and electricity bills rise as predicted.’

Despite the insistence of Ministers and the industry in general, there are numerous practical reasons why expanding UK oil and gas exploration and production will not provide the UK with a secure supply of affordable energy.

The North Sea cannot practically deliver what the UK needs

The North Sea is an ageing basin where it takes decades to go from discovery to drilling. It contains mainly oil, which the UK sells abroad, and a minimal quantity of gas, all of which is owned by energy companies who then sell it back to the UK at an inflated price.

The geology of the North Sea means that after nearly 50 years of production, 70% of what is left in the basin is oil (and not the type of oil that we use in our refineries, meaning that we export 80% of it).

Approximately 46 new fields are up for approval in the next three years, but it takes on average 28 years to go from discovering a new field to getting any oil or gas out of the ground. | Camille Aboudaram / Fossil Free London

UK gas reserves are limited and opening up new fields will not significantly contribute to meeting demands

To put North Sea gas reserves into context, as Europe seeks to slash its dependence on Russian resources, even extracting all proven UK reserves from new fields would only meet about 1% of European gas demands each year until 2050, according to the Climate Change Committee.

New licensing is not leading to new production any time soon

Of the 15 North Sea oil and gas projects currently in development, only five were discovered this millennium. Official figures report that it takes on average 28 years to go from discovering a new field to getting any oil or gas out of the ground. This process is therefore far too long to reduce energy bills in the UK.

Analysis by Uplift of Rystad data shows that oil makes up 73% of the resource in the 46 new fields for approval in the next three years. Given that the UK exports the vast majority of its oil, these new but already licensed fields will contribute nothing to UK energy security.

The oil and gas of the North Sea reserves will belong to the licence-holding multinational, private equity- and state-backed oil and gas firms, including companies fully or partly owned by the governments of Russia, Iran, China and Norway, among others, who will sell it to the highest bidder.

‘Official figures report that it takes on average 28 years to go from discovering a new field to getting any oil or gas out of the ground.’

Towards the end of last year, just as we entered the gas crisis, the UK exported double the amount of gas for the time of year, because the companies that own it could get a better price for it elsewhere. Exports in October 2021 were the highest for that month for a decade.

Currently, 80% of North Sea oil is exported and sent in tankers around the world to be sold on international markets. This is because there is little demand from the country’s refineries for UK crude oil. However, even gasーwhere there is domestic demandーis exported overseas.

To lower energy bills, we need to use less gas as a society

Increased energy efficiency is the quickest way to permanently lower energy bills. For example, just improving homes rated from ‘D’ or worse for energy performance to ‘C’ would save households over £500 per year, an aggregate nationwide saving of £8 billion.

‘It is the global price [of gas] that sets the UK price.’- Greg Hands, Business Minister.

Just as European countries urgently rewrite energy policy to reduce their dependence on Russian gas, the UK Government needs to urgently draw up an ambitious, nationwide energy efficiency scheme to lower energy costs. As a bare minimum, it needs to deliver in full its promised investment in green homes and ecological buildings.

The new North Sea project will not lower energy bills and is slowing the UK’s transition to a clean, cheap energy system. | Camille Aboudaram / Fossil Free London

…and accelerate the shift to cheaper, renewable energy

As the Business Secretary says: ‘renewables are cheaper than gas’. It is now cheaper to make electricity from UK renewables than it is from gas and electricity bills have been kept more affordable thanks to renewables (last year offshore wind farms paid tens of millions of pounds back into the public purse). The UK has the best renewable resources in Europe.

Energy bills in the UK are nearly £2.5 billion higher than they would have been if climate policies like these had not been scrapped over the past decade.

Money spent on oil and gas is money wasted

Take the new Abigail oil and gas field, which the UK approved in January. The Abigail field is a small field off the East coast of Scotland. It will cost many millions to develop, but will only produce enough gas to meet UK demand for roughly a day and a half or 34 hours. Abigail’s oil will likely be exported, as is the case with 80% of oil extracted from the North Sea. It will do nothing to provide UK households with affordable energy.

The oil and gas industry is slowing the UK’s transition to a clean, cheap energy system

The oil and gas industry is failing in its promises to power the UK’s green transition. In March last year, the government announces a plan一the North Sea Transition Deal一which the industry claims will ‘deliver a managed transition, support cleaner energies and deliver net zero in a way that also guarantees reliable energy supplies.’ The deal, which was drafted by the representatives of the oil and gas industry, is little more than a fig leaf for business-as-usual.

Last year’s ‘Transition Deal’ with the industry is about maintaining oil and gas dominance in our energy system. Its focus is on building the UK’s capacity in carbon capture and hydrogen, and on decarbonising oil and gas production. In other words, reducing the emissions created by getting the resources out of the ground. All of which are concerned with maintaining oil and gas companies’ social licence to operate.

The deal has nothing to say about cutting emissions from burning the oil and gas produced or crucially for the UK’s energy security, on the urgent need to shift the UK away from expensive oil and gas and onto affordable energy sources.

The Government’s plan for the North Sea does nothing to ensure the UK has an affordable supply of energy. | Camille Aboudaram / Fossil Free London

The industry is awash with cash, yet the overwhelming majority of oil and gas producers in the North Sea invest nothing in UK renewable energy production.

UK oil and gas companies are expected to enjoy the highest ever cash flows this year since North Sea drilling began in the 1970s. They are also benefiting from a fiscal regime that has one of the lowest government tax takes in the world and the highest rate of return for investors. Despite this一and industry claims to be powering the UK’s transition to a low carbon energy system一the overwhelming majority of oil and gas producers in the North Sea invest nothing in UK renewable energy production. Even the oil and gas majors, like BP and Shell, still invest substantially more in oil and gas production than in renewables. Just look at the Norwegian giant Equinor.

More than 90% of its total capital spending in 2021 went to oil and gas. Equinor invests heavily in North oil and gas production. For example, it is looking to develop the Rosebank oil field, which is nearly twice the size of the controversial Cambo field, and one of the six that the Government is reportedly looking to fast-track for approval this year. Rosebank contains more than 300 million barrels of oil, which will be sold to the highest bidder, exported and will play no role in UK energy security. Equinor is majority-owned by the Norwegian state, so the profits from Rosebank will go to the Norwegian public.

Industry giant Shell’s claims that the revenue from oil and gas is needed to fund the transition have been undermined by recent decisions by other oil and gas majors to divert the windfall profits they are making from record oil and gas prices into multi-billion pound share buybacks.

Shell recently published its tax payments in 2021. Warning: It's going to make you angry.’ | Paid to Pollute / Instagram

The investment decisions of North Sea operators are driven by oil and gas profits, not ensuring that the UK has an affordable supply of energy

Private firms, which tend to make short-term investments, now make up a third of all North Sea operators. They are also less accountable and transparent than publicly-listed companies. Increasingly, these are the players that the Government is relying on to provide the UK with a secure supply of affordable energy.

The Government needs to act decisively and with urgency to solve the UK’s energy security crisis

The UK’s oil and gas industry has made the Government complacent about the urgent need to secure affordable energy supplies. Millions more people in the UK are going to be forced into fuel poverty by the volatility of oil and gas markets. Belatedly, ministers have conceded that there is little correlation between new North Sea production and affordability of supply, which is at the heart of the crisis but is pressing ahead with plans as if it was.

Current policies一regarding the future of the North Sea, as well as renewable energy generation and the rollout of energy efficiency, measures一are inadequate and need to be rewritten to reflect the scale of the crisis. The Government must create energy policies that, rather than echoing the wishes of the world’s oil and gas executives, urgently deliver a cheaper, clean, secure supply of energy for the UK.

Take action. Join the fight with the Stop Cambo campaign, here.

Featured Image: Camille Aboudaram | Fossil Free London

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