Oil and gas imports are a problem. Labour should rethink its North Sea stance
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Version 0 of 1. Rachel Reeves could make geopolitical, economic and environmental case for limited boost in production If the chancellor is looking for a pro-growth, pro-jobs, tax-raising policy that would be popular with major trade unions and might even be noticed by the bond markets, here’s one: boost production of oil and gas in the North Sea. And make the argument that the UK’s current over-reliance on imported supplies isn’t doing anything to help the climate emergency. There are obvious political problems, of course. First, Kemi Badenoch, the Tory leader, has just made her pitch to ramp up North Sea volumes and it’s rarely a good look to be accused of pinching the opposition’s clothes. But Labour’s vision could be different. It would not say that “all” our oil and gas must be extracted – Badenoch’s implausible ambition. It would emphasise that achieving net zero emissions by 2050 is still the priority and the energy transition will still happen. But it would concede that the decline in domestic oil and gas production must be addressed in light of geopolitical risks, the carbon consequences of relying on imports, and concerns over jobs. The second political problem is more basic: Labour’s manifesto ruled out new licences to explore new fields, arguing they would “only accelerate the worsening climate crisis”. But is there wriggle room there? The hard reality is that the UK will still consume a lot of fossil fuels even under a successful 2050 transition. From a climate perspective, an almost unarguable point is that the UK’s reliance on imported gas in liquefied form is an outrage. Such imports from the US, Qatar, Algeria and other countries made up a quarter of UK gas supplies last year and are demonstrably worse for the planet than gas produced at home. The government’s own licensing and regulatory body, the North Sea Transition Authority, has been clear on the pollution point. “The average carbon intensity of imported liquefied natural gas (LNG) is almost four times the carbon intensity of UK production,” it said in a report a couple of years ago. The reason is straightforward: liquefaction, transportation across oceans and regasification all add emissions. At a push, one might argue that LNG was temporarily tolerable if UK consumption of gas were set to disappear by, say, 2035. But you’ll struggle to find an energy analyst who thinks that will happen. Gas may dwindle to next to nothing for the purposes of electricity generation, but the lion’s share of its use is for domestic heating and cooking, where phasing out will inevitably be slower. The case for boosting oil production is trickier because most North Sea production is exported (partly because that’s how the oil industry works, and partly because of the closure of UK refineries such as Grangemouth). But the overall picture is still that oil and gas accounts for 75% of the UK’s energy needs today and the reliance on imports has reached 40%. Nobody pretends the UK will ever again become a net exporter of oil and gas – the North Sea is still a basin in long-term decline – but the net cost of energy imports last year was almost £21bn. It all counts against the balance of payments and ripples through the economy. Offshore Energies UK (OEUK), the industry’s trade body, thinks North Sea-dependent jobs are being lost at a rate of 1,000 a month. Gary Smith, the leader of the GMB union, joined the political dots in an interview with the New Statesman in July: “We have been decarbonising through deindustrialisation and it’s counterproductive because the communities that have seen their industries closed down, they’ve been abandoned and will end up voting for the right, and exactly the way that they have in America.” Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion Is there a way to square the circle and interpret the manifesto pledge flexibly to boost homegrown production? The most interesting idea on that score came last week from Prof John Underhill, the director for energy transition at the University of Aberdeen. Switch to a system of “bespoke” applications for “near-field exploration or infrastructure-led drilling around existing fields and … strategically important pipelines,” he said. In other words, make best use of the existing infrastructure to ensure supplies aren’t shut in. But also, argued Underhill, ensure homegrown emissions are driven down by banning flaring and promoting electrification on platforms, which is how Norway’s modern industry has achieved its leading status. It sounds a more intelligent and nuanced approach than a blanket “no new licences” policy. The bottom line is that the UK, even under a successful transition, is still going to use 10bn-plus barrels of oil (and gas equivalent) on the way to 2050 on most projections. The current trajectory is for 4bn-ish barrels of UK production, thinks OEUK, which reckons a “realistic target” would be 6bn under a more incentivising tax regime (the other political obstacle). The big-picture point is that a policy that encourages domestic production to the least polluting standards – while keeping 2050 targets intact – has merit if the UK will consume the oil and gas anyway. “The UK still relies heavily on oil and gas and, without a clear and pragmatic plan, we risk replacing homegrown supply with higher-emission imports,” argues Underhill. It is the point the government needs to address. |