Keir Starmer recently announced that the UK will grant no new licenses for oil and gas firms to drill in the North Sea if Labour wins the next election.
It’s a decision that would terminate the UK’s 60-year policy of offering up new areas of the North Sea for fossil fuel extraction. The Labour party has promised to clarify its energy policy later this month.
The plan has been criticised, for different reasons, by oil industry figures, union officials and politicians. But how consequential is it?
Labour’s challenge to the offshore industry is part of a broader public debate in the UK about what a desirable future looks like with a worsening climate emergency and after half a century of domestic extraction.
Longstanding principles of offshore oil and gas policy – such as maximising the recovery of hydrocarbon fuels which it is cost-effective to pump – are being challenged in court. Opposition parties and trade unions demanded oil and gas companies pay a windfall tax while consumers are saddled with high energy prices.
The independent Climate Change Committee, which advises the UK government on meeting its emissions targets, supports the end of oil and gas exploration – and the Scottish government has embedded a similar position in its draft energy strategy.
Denmark, France and Ireland have already declared a halt to licensing and pledged a managed phase-out of oil and gas production. The International Energy Agency found that no new oil and gas fields (beyond those already approved for development) are required to meet demand under a scenario in which the world reaches net zero emissions by 2050.
Evidence of the need for rapid cuts to the amount of fossil fuels being extracted and burned is mounting. There is even a financial case for it, as fossil fuels and the infrastructure that produces them risk becoming massively overvalued stranded assets as demand falls in the transition to a low-carbon economy.
Labour’s reported position on licensing, then, is not a bolt from the blue. Starmer said in January, while on a panel at the World Economic Forum in Davos, that oil and gas would play its part during that transition – “but not new investment, not new fields up in the North Sea, because we need to go towards net zero, we need to ensure that renewable energy is where we go next”.
What’s in the pipeline?
Labour’s plan would draw new licensing to a close, but it would not end oil and gas production. There have been 33 licensing rounds since the mid-1960s, the primary means by which oil and gas companies gain access to the seabed on the UK’s continental shelf. The most recent opened in October 2022 and its outcomes have yet to be declared.
Large reserves of oil and gas are already covered by existing licenses and await decisions by the companies who hold them on whether to develop them. A Labour spokesperson has clarified that it would not touch this substantial pipeline of projects, and that “existing licences will continue and using existing wells sensibly is baked into our plans”.
For anyone concerned about climate change, this is a major problem. Pressure from Greenpeace and allied climate campaigners is building on the regulator, the North Sea Transition Authority (NSTA), to withhold consent – especially for large-scale projects such as Rosebank and Cambo. From the Scottish government’s perspective, declining production in the North Sea offers a glide path for a “just transition” from a fossil fuel economy.
Will Sunak go for broke?
The immediate question is whether the government will seek to drive a big licence giveaway to lock in as many new fields as possible before a future Labour government ends licensing.
It’s possible. The UK prime minister, Rishi Sunak, has described the idea that the UK will not develop further offshore oil and gas fields as “economically illiterate”. When the current 33rd licensing round opened in October, Liz Truss called for 100 licenses to be made available and 115 bids were received from 76 companies. The NSTA is expected to announce very soon what licences will be awarded.
It’s worth noting that the licences on offer are in what the NSTA calls technically mature but undeveloped cluster areas. That is, areas which have known reserves, are close to drilling platforms, but which are not currently pumping any oil and gas. These sites were selected to enable expedited production, particularly of gas.
Changing licensing structures to suit company needs and encourage development could be another possibility. NSTA has done so in the past. But any such measures are bound to come under scrutiny.
Scheduling a further licensing round before the general election seems unlikely. The process is protracted and absorbs substantial resources at the NSTA, which is also managing a new licensing programme for carbon storage.
What if Labour wins?
The more interesting question is what an NSTA under Labour could look like.
Established in 2015, NSTA (previously called the Oil and Gas Authority) was deliberately conceived as a different kind of regulator – one with the expertise and powers necessary to stand up to the oil majors but, at the same time, a co-creator of value working closely with industry and government. This was partly enabled by setting it up as a company fully owned by the government. Starmer winning the 2024 general election would place the NSTA under the control of a Labour government for the first time.
At the core of NSTA’s work is an obligation to achieve the greatest possible net economic value from oil and gas extracted in the North Sea. This is an objective also embedded in the 1998 Petroleum Act, which has now been paired with an effort to support the country’s net zero committment.
At the moment, meeting net zero emissions from North Sea oil and gas primarily means reducing direct and indirect operating emissions (scope 1 and scope 2), for example, by running drilling platforms on electricity from renewables, such as offshore wind, and reducing gas flaring and venting, as well as investing in carbon capture, use and storage.
Significantly, it leaves scope 3 (supply chain and customer use of products) and the underlying objective to maximise the economic recovery of oil and gas untouched. Scope 3 emissions account for roughly 70% to 90% of the total emissions from extracting, refining and consuming oil products and 60 to 85% of those from fossil gas.
Labour putting the climate at the heart of a new UK North Sea policy would imply a fundamental reimagining of existing regulatory obligations. NSTA already has the power to revoke licences if licensees do not meet regulatory requirements, although this is not often used (first time in May 2023 when a company defaulted on its share of decommissioning costs).
Removing the maximum economic recovery obligation from NSTA would probably require rewriting or unmaking the Petroleum Act. This is a step more profound and more laborious than the pragmatic decision to stop licensing. But it is one that could open up a more extensive public deliberation on the future of the North Sea.
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Gavin Bridge receives funding from the UK Economic and Social Research Council.
Gisa Weszkalnys receives funding from ESRC.
This article was originally published on The Conversation. Read the original article.
