Claim: “Putin has weaponised energy supplies, causing household bills to soar… I’m taking action to drive down energy prices” – PM Rishi Sunak, tweet on July 31
Doorstep answer: Pumping more North Sea oil won’t bring down energy prices. The oil giants deliberately sell to the highest bidder and at world prices. Scotland is energy rich yet has pensioners and single parents unable to heat their homes.
BACKGROUND
On July 31 2023, Prime Minister Rishi Sunak announced that the Conservative government was minded to issue hundreds of new licences to drill for oil and gas in the UK sector of the North Sea.
In an accompanying tweet, Sunak claimed: “This will boost domestic gas productions, which means British homes and businesses will have access to cleaner and cheaper energy.” Is this plausible?
The UK remains heavily reliant on fossil fuels. Last year we consumed around 61m tonnes of oil and 77bn cubic metres of gas to meet about three-quarters of UK energy demand. This is because 24m homes in Britain use gas boilers and 32m vehicles still rely on petrol or diesel. In addition, 42% of UK electricity is generated by burning gas.
Given this level of demand, increased production could lead theoretically to a fall in energy prices - assuming everything else is equal. However, everything else is certainly not equal.
First and foremost, fossil fuel producers sell their crude production to the highest bidder, in order to maximise profits for shareholders. North Sea oil and gas producers would be loath to sell cheaply in the UK if they can sell at a higher price abroad. This is the primary reason why British household gas bills rocketed in 2022. The price of energy in the UK depends on the global price, regardless as to the local level of production.
Note: It would be possible for a UK (or independent Scottish) government to impose price controls, as happens in wartime. However, it is highly unlikely a Conservative government would take such a step. Another problem is that interfering with the market could lead to energy companies refusing to invest and even moving their business abroad. Again, this can be countered by nationalisation of North Sea assets but this seems an unlikely policy from either a Sunak or a Starmer administration.
WHAT IS HAPPENING TO OIL PRICES?
This raises the question: what is likely to happen to global energy prices? The future price of oil and gas can be predicted in the so-called “futures market” where fossil fuels trade for delivery in several year’s time. On the date Sunak issued his tweet saying he was taking action to cut prices, the actual market price of oil from the North Sea was $85.50 per barrel. The price on the futures market (actual contracts) was $88.19 for delivery in August 2025.
In other words, the markets are predicting a rise in oil prices, not a fall. Sunak’s claim is not supported by the evidence. The price on the futures market becomes less certain the further out we look. However, for the record, the price of North Sea crude predicted for December 2026 is $135.96 and for August 2027 it is $120.60.
Of course, the price of gas and oil as we move further into the future will depend very much on the speed of transition to net zero carbon emissions. If renewables effectively replace fossil fuels, then the price of natural gas and oil will fall with falling demand.
Current forecasts by the independent International Energy Agency (IEA) based on announced conversion plans by the major economies suggest that demand for extra gas supplies will slow by 2030 and remain flat between then and 2050. That would imply relatively stable gas prices at a global level rather than significant falls. However, if anything delays the transition to net zero – which is still premised on as yet unachieved technological advances – then gas will remain a transitional fuel. That would mean a scenario of rising gas prices till the end of the century.
NORTH SEA RESERVES
The other variable involved is the size of the remaining oil and gas reserves in the British sector. The PM is now proposing to “max out” these reserves. Currently, North Sea oil and gas production is on course to fall from circa 90.3m tonnes of oil equivalent in 2019 to just over 46.3m within the next five years, according to the North Sea Transition Authority. Issuing new production licenses could raise this figure.
However, producing in the North Sea or the Atlantic is expensive compared with North Africa or the Middle East. As a result, any stepping up of production will depend on sustained higher fossil fuel prices globally.
But how much oil and gas remains to be extracted? Famously, oil companies are less than honest about their reserves, lest they become a take-over target. And UK governments are prone to minimising reserves lest they encourage the independence movement.
But according to the Oil and Gas Authority’s Vision 2035 report (safely published after the independence referendum of 2014) there was a comfortable 14bn barrels of oil equivalent available if the price was $60pb or more. What that doesn’t take into account is recent improvements in extraction productivity. All of which suggest there could be a lot of “maxing out” to do, if that is a political option.
CONCLUSION
Increasing production on a meaningful scale could take at least a decade. Further, it would start to conflict with Britain’s net zero obligations. The policy only seems viable if linked to various carbon mitigation requirements. In particular, the UK has always failed to employ the sorts of mitigation rules enforced in the Norwegian sector, such as a complete ban on gas flaring.
There is also the question of carbon storage. It is significant that Sunak made his recent announcement at the same time as offering fresh money for a carbon capture and storage facility in Scotland – virtually the same project scrapped by Tory Chancellor George Osborne back in 2015.
FACTCHECK RATING:
This ex-banker gets zero out of 10 for his economics but a modest star for backing carbon capture. It remains to be seen if he delivers.
