The government’s energy plan is focused on the urgent need to lower UK energy bills, which have soared due to global gas prices. However, the new Truss government has also framed the crisis as one of energy security and, in particular, the need to boost domestic gas supplies. They couldn't be more wrong.
This briefing spells out the facts.
Claim: North Sea gas production has increased 26% this year
This is an industry figure repeated by UK ministers. It is highly misleading. Production was massively down last year as producers used the pandemic to complete substantial maintenance. So, yes production has since risen, but it is still only at around pre-pandemic levels. (1)
The UK already has a policy of ‘maximising’ the amount of oil and gas we get from the North Sea, so pledges to increase production are nonsense.
Claim: We can ramp up North Sea gas production this year
The UK government can do little to increase the flow of gas from existing North Sea fields. One way to increase output, however, would be to lower the quality of gas – known as the Wobbe index – to allow slightly more gas to come onstream. This, however, would increase gas production by roughly 1% this winter. (2)
Claim: UK gas production can be boosted by fast tracking new fields
The North Sea is an ageing basin - in terminal decline - and, after nearly 50 years of production, most (70%) of what’s left isn’t gas but oil. Currently 80% of North Sea oil is exported because it’s sold to the highest bidder on a global market and there is little demand from the country’s refineries for UK crude oil. Oil makes up three quarters of the resource in the 40 or so new fields up for approval in the next three years. In other words, most of the reserves that could potentially be brought online within years rather than decades are oil –most of which will end up overseas – not gas. That’s just geology.
New gas fields in the pipelines will meet only a tiny fraction of UK gas demand and not for years. Take the new Abigail oil and gas field, which the UK approved in January. Abigail 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. Even Shell’s Jackdaw field, cited by a minister this morning as a solution, will only meet around 1- 2% of UK gas demand over its lifetime. It wouldn’t produce any quantity of gas until 2025 and production would drop by almost 60% within four years of its peak in 2026.(3) Rolling out insulation and heat pumps will reduce gas imports more, quicker and permanently than Jackdaw.
Claim: Issuing new oil and gas licences will boost UK gas production
Besides the point that the North Sea is predominantly an oil basin, licensing new fields won’t lead to noticeable amounts of gas being produced. Around 200 licences have been issued to companies in the last eight years, but barely a handful of these are producing any oil or gas today.
Claim: The UK has 15 billion barrels of unexploited oil and gas left
This is another misleading industry claim. A large proportion of these reserves might not be 'producible' due to the technical problems and associated costs of getting it out of the North Sea, which is a difficult and expensive basin to exploit. Drilling lots more wells often doesn’t lead to discoveries. Operators have had a run of 'dry wells' recently, including the unsuccessful Diadem well (pronounced dry this week) and Jaws well (earlier this year). Also, two thirds of these reserves are oil, which will likely be exported.
Claim: New North Sea gas will stop us from needing to rely on expensive imports
There is not nearly enough gas left in the North Sea to meet current UK demand. The bald truth is we’ve already burned most of the UK’s gas.
Even if the UK exploits all the gas in the North Sea, gas imports will still increase unless or until we reduce demand and increase UK renewable energy generation, which is now nine times cheaper than UK gas. Investing more money in gas infrastructure just locks us into an unaffordable and polluting source of energy far longer than is necessary.
Claim: North Sea oil and gas operators pay high taxes; we don’t need a windfall tax
The UK has long been among the most profitable places in the world to develop large oil and gas projects, thanks to its generous tax system. It meant that, for example,the UK was the only country where Shell operated that it didn’t pay any tax in 2020. In fact, it collected almost £100m from the UK government. Last year, as gas prices hit record highs, Shell again received more – $120 million more – than it gave back to the UK.
Even with the additional 25% tax introduced by the former Chancellor, Rishi Sunak, as part of the Energy Profits Levy, the UK tax rate still lags behind the global average of 70%. And UK oil and gas companies will still see record profits this year. The levy also comes with a massive investment subsidy that allows oil companies to reduce their tax bill by investing in new oil and gas projects.
Claim: If we impose a windfall tax, it will deter investment in the North Sea
The government claims that imposing further taxes on oil and gas companies will deter investment in the North Sea. However, the CEO of one North Sea operator, the Norwegian giant Equinor, said just this week that higher taxation of energy companies is justified if it gives governments the means to ease costs for consumers and other businesses.
Besides, most of the costs of developing new North Sea oil and gas projects are now being carried by UK taxpayers, thanks to a new investment allowance introduced with May’s windfall tax. It means that whatever a company invests in North Sea oil and gas, almost as much will be discounted from their windfall tax bill.
The new subsidy means that the public will end up carrying almost all the costs of developing Equinor‘s planned Rosebank oil field off the coast of Shetland, which is now up for approval. In effect, the UK public will hand Rosebank’s owners, which includes the Norwegian government – more than £800 million in subsidies. That’s £800 million, by the way, that was supposed to help people in the UK struggling with unaffordable energy bills. Likewise, Shell will save £210 million on its tax bill from developing the Jackdaw gas field, thanks to the subsidy.
Claim: North Sea oil and gas are the same companies investing in the clean energy we will need in future
Despite the industry’s marketing claims, oil and gas companies are investing only a small percentage, if anything, in UK renewables. The overwhelming majority of oil and gas producers in the North Sea – 73% – invest nothing in UK renewable energy production. Even the oil and gas majors still invest substantially more in oil and gas production than renewables. Analysis of the accounts of Shell, BP, TotalEnergies and Equinor shows that in the first half of this year, these companies collectively made £74.4 billion, but reinvested just £3.4 billion in renewables and ‘low-carbon’ energy. On average, that’s equivalent to just 5% of their profits.(4)
Claim: Increasing UK domestic gas supply will lower bills
New domestic gas production will do next to nothing to solve the crisis we face, which is overwhelmingly one of affordability. The amounts we could produce are too small to affect a price that is set on global markets. The gas in UK waters is owned by multinationals, private finance and foreign states and sold back to us at market price, which is now beyond what most people can afford and is likely to remain so for at least three years. Kwasi Kwarteng, the new Chancellor, has publicly conceded that more gas won’t make a difference to our bills.(5) The industry has also said increasing production won’t make any difference to bills.
The only way to provide UK energy security – which means a secure supply of affordable energy – is to shift the UK off volatile fossil fuels through a national rollout of home insulation and affordable renewables.
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