Viability of linking new production to existing hubs explored as calls grow for extensions to existing licences
For Donald Trump, the North Sea is a “treasure chest” of oil and gas reserves that the UK is leaving untapped, with a 78 per cent tax rate that disincentivises investment.
The US president’s views are echoed by Nigel Farage of Reform UK, who last week touted the potential for growth, saying it was “absolutely tragic, self-defeating and stupid what we are doing to the North Sea”.
Ahead of a major energy conference in Aberdeen Kemi Badenoch, Conservative leader, will on Tuesday join the pro-North Sea chorus, pledging to “maximise the extraction of our oil and gas” by scrapping the Labour government’s ban on new oil and gas licences.
The interventions are fuelling scrutiny of the UK government’s approach to the mature basin as it balances climate concerns against the impact of widespread job losses caused by the departure of producers.
The government argues that new exploration licences would “not take a penny off bills, cannot make us energy secure and will only accelerate the worsening climate crisis”, according to a spokesperson.
But a government consultation earlier this year on the future of the North Sea looked at the viability of “tiebacks”, which allow new production to be linked to existing oil and gas hubs.
One senior Labour figure in Scotland said the government would offer more “flexibility” for companies to exploit resources through such subsea pipelines.
“Even if it is only a marginal increase [in production], why wouldn’t we give it to them,” they said.
Climate campaigners disagree. “Planning to unleash more North Sea drilling after another summer of record heat and wildfires isn’t just reckless ignorance of the threat posed by the climate crisis, it’s also bad economics,” said Areeba Hamid, Greenpeace UK’s co-executive director. “The oil and gas industry was losing jobs even when new licences were handed out.”
The UK is on track to produce 3.8bn barrels of oil equivalent between 2025 and 2050 — but oil and gas lobbying group OEUK argues that this could be increased to 6bn-7bn barrels.
As well as calling for urgent reform of the 78 per cent energy profits levy, OEUK commissioned research in June illustrating how to slow the basin’s decline by linking licensed discoveries via tiebacks to the North Sea’s 67 production facilities.
Viable accumulations of oil and gas within 50km of existing hubs could be developed “quickly and cleanly” through tiebacks, according to OEUK.
These pipelines, most of which are less than 25-30km in length, could play a role in “more cost-effective production”, the North Sea Transition Authority, the industry regulator, said in July.
About 85 per cent of potential licensed oil and gas resources lie within 50km of existing production hubs, according to Westwood Global Energy’s research.
“The geology has not changed,” said Yvonne Telford, research director at Westwood. “Instead, the fiscal, regulatory and political environment has led to companies deferring or cancelling plans.”
Westwood’s research outlines a scenario in which a more favourable regulatory and fiscal regime boosts investor sentiment and delivers 4.3bn barrels within licensed areas, slowing the decline in production and exploiting around half of existing commercial discoveries.
To reach OEUK’s target of producing half of the UK’s oil and gas needs domestically, Westwood also outlined a “no constraints” scenario with “major changes” to the regulatory and fiscal regime.
This could achieve 7.1bn barrels from licensed areas or 7.5bn barrels including unlicensed areas.
Such a sharp increase in output, however, has been described as “optimistic” by UK government officials.
“This is extremely optimistic about the likelihood that various resource classes will be discovered and produced,” said one official.
The UK is one of the world’s most expensive regions to extract oil and gas because of harsh weather conditions and high decommissioning costs. Oil majors have largely exited the North Sea for more lucrative prospects elsewhere.
And many — including within the Labour party — argue that making concessions to the oil industry just delays the shift to renewables.
The UK government is waiting for production plans from the operators of the Rosebank and Jackdaw fields, which were previously blocked in the courts by environmental campaigners. Regulators must now weigh the impact on the climate of burning any fossil fuels produced in these fields against the economic benefits.
Uplift, which campaigns against fossil fuels, said the UK’s climate targets were incompatible with allowing new North Sea fields, including Rosebank, which developer Equinor says could produce 7 per cent of the country’s oil by 2030.
Rosebank also has a weak economic case, Uplift added. Given “generous” investment allowances, the UK treasury would only make money on the field if oil prices were to remain above $70 a barrel for many years, it said. Brent crude is trading at around $68 a barrel.
Equinor countered that Rosebank had “no cost . . . only benefits”.
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