A Just Transition for the UK North Sea makes economic sense without increasing global CO2 emissions
Energy Transition Commentary 11
Whilst the UK is making good progress growing its renewable energy supplies, it is generally acknowledged that gas will continue to be a part of the UK’s energy mix for the next two decades. There are adequate reserves in the UK North Sea to meet this need but because of the government’s unwillingness to grant licences for new exploration and development on the UKCS, the UK now needs to import 66% of its gas supply.
By far the largest supplier is Norway so that the UK is in the anomalous position of importing gas produced from the same North Sea that we are abandoning. Not only does this result in significant decreases in tax revenues, but it is also leading to large losses in jobs in the UK oil and gas sector, with major impacts on the livelihoods of many communities in Scotland and the north of England.
The Energy Transition is an essential part of mitigating climate change, and the UK is well on target with meeting its carbon budgets as it transitions to net-zero carbon emissions by 2050, but this transition needs to be a Just Transition for the citizens of the UK, with energy security and continuity of employment provision at its heart as well as decarbonisation. On top of this, the imposition of windfall taxes on gas producers in UK waters acts as a large disincentive to oil and gas companies operating in the North Sea, so accelerating the decline in jobs and inward investment.
In June, after the announcement of Centrica signing a new £20bn ten year contract to import gas from Norway, IChemE Past Presidents Andrew Jamieson and Geoff Maitland wrote an opinion piece in The Chemical Engineer which we reproduce here:
“With the flurry of headline-grabbing news nationally and internationally over the past few weeks it is perhaps unsurprising that the announcement of the Centrica deal, worth £20bn (US$27bn) over a ten-year timeline, for the importation of gas from Norway to the UK got minimal coverage in the mainstream media. Nevertheless, given the government’s focus on economic growth and the creation of highly skilled, well-paid jobs, the deal’s impact on domestic gas production and employment raises serious concerns.
It is generally acknowledged that gas will continue to be a part of the UK’s energy mix for the next two decades, but the government has implemented a ban on new field exploration and production in the North Sea. Coming on top of the previous government’s imposition of windfall taxes, increased by the current government, this has resulted in the reduction of highly paid and skilled jobs by North Sea operators and led to the increased need for importation of gas from Norway.
This also impacts the already distressed balance of payments, let alone weakening our control over energy security. While the North Sea is a declining resource asset, there are significant hydrocarbon reserves yet to be discovered and developed which, by utilising carbon capture and storage (CCS) when gas is used for peak power, hydrogen production and industrial processes, can be done in a way which is compatible with the drive to net zero. Government-backed CCS projects underway in the northeast and northwest of England, as well as in Scotland – including the world’s first CCS gas-fired power plant – will play a vital role in supporting a just transition. They offer continued employment for skilled workers, economic benefits for local communities, and broader gains for the nation.
CCS is not a mechanism and excuse for prolonging the use of fossil fuels. It is a technology which, until sufficient low/zero carbon electricity and manufacturing processes using renewable (bio)feedstocks are available, can enable us to continue to decarbonise and meet our decreasing carbon budgets in a way that relies more on the UK’s own natural resources and maintains and creates jobs and economic prosperity. This approach will help to ensure that this inevitably long and challenging transition to net zero is a just one for as many in the UK (and across the world) as possible.
We need to continue to use gas but there is no virtue in importing it from Norway, which produces it from the same North Sea that we are abandoning. Not supporting new exploitation of our reserves there, while investing in growing CCS deployment, is misguided. Domestic gas production and use require a long-term, systems-thinking approach from government to avoid unintended consequences and recognise that today’s energy policy decisions will adversely impact value-adding sectors for decades to come.”
These issues are a major concern for the UK oil and gas industry and its employees, who have been expressing similar disquiet about the impact of failing to grant new exploration licenses in the North Sea and the continued imposition of windfall taxes. The sector is losing about 1,000 jobs a month as its decline accelerates and investment moves overseas. Offshore Energy UK (OEUK) made a budget submission to the Treasury in October (0d175b64-f4a1-4bc2-bcd7-18d65828917d), proposing just such a ‘long-term, systems-thinking’ plan for the North Sea, bringing together three sectors: oil and gas, carbon capture and storage (CCS) and offshore wind, working together to deliver secure and affordable energy, preserve and create jobs and keep the UK competitive on the path to net zero. This submission proposed three priorities: reforming the Energy Profits Levy immediately, replacing declining windfall taxes with a profits-based mechanism to restore investor confidence and the long-term competitiveness of the UK offshore oil and gas industry; providing the committed funding to deliver the UK’s low-carbon CCS industrial clusters by expanding and accelerating the Track 1 and Track 2 cluster projects and opening a route to market for projects outside the cluster sequencing process; and delivering a steady offshore wind pipeline that improves the competitiveness of the UK supply chain, drives cost reductions and prevents high electricity prices being locked in. This would be achieved through creating a single coordinated delivery framework (‘Offshore Energy Mission Control’) which brings together government, regulators and industry to ensure joined up delivery across oil and gas, carbon capture, hydrogen and wind, supporting a secure and low carbon energy system. Benefits would include faster licensing, investment and infrastructure development and ensuring that at least half of UK energy demand is met from domestic sources.
OEUK projects that taking this integrated systems approach and removing the windfall taxes will result in £10.4 bn additional tax revenues by 2034/35 and £50 bn in new capital investment, protecting 160,000 jobs, creating 23,000 new ones, accompanied by a 50% cut in emissions by 2030 and adding about £140bn to the overall UK economy by 2050 (Analysis shows Energy Profits Levy reform will give a £15 billion government revenue boost | Offshore Energies UK (OEUK)). CEO David Whitehouse says “The future of the North Sea is in our hands. Our message to government is simple: Reform the EPL in 2026 to unlock more tax not less, support more jobs not less and deliver more homegrown energy not less.”
A number of key issues would need to be addressed: for instance a mechanism would be needed to ensure that gas produced in the North Sea from new drilling would be used to supply the UK, perhaps by making it a condition within a reformed EPL, and unless North Sea gas can completely displace all imported gas then avoiding the cost of power and heat continuing to be set by the price of marginal imports would need to be addressed through the Review of Electricity Market (REMA) programme. Nevertheless, we think that the proposal is a creative plan for ensuring a far more just energy transition for UK communities currently strongly dependent on the oil and gas industry, and those seeking economic regeneration by replacing declining manufacturing by low-carbon alternatives, which is well worth careful consideration by government as a route to providing a stable policy and clear fiscal rules to attract capital and strengthen supply chains.
Although the Budget on November 26 has to some extent relaxed the constraints on drilling in the North Sea, with the government introducing Transitional Energy Certificates (TEC) that will allow companies to continue to drill for oil and gas in existing fields, the announcement stresses that this drilling must not involve new exploration. It is not clear whether this will enable licences for major stalled developments such as Rosebank and Jackdaw or will simply allow in-fill drilling on existing fields. The government has not acted on the proposal from OEUK, who have expressed their great disappointment ((41) Post | Feed | LinkedIn). The EPL windfall tax will remain in place until 2030 and this is likely to discourage the necessary investment even if new licences are granted. All this means that we will continue to import more gas from Norway, the US and the Middle East, more North Sea projects will stall, conventional production taxes will continue to decline, jobs and livelihoods will disappear, leaving once thriving communities paying a huge price for being caught up in an energy transition that for them is far from just. Moreover, there is an increased risk that the UK will lose the expertise and skilled workforce in the subsurface industries that will still be needed in the future for the energy transition, for hydrogen as well as CO2 storage and for geothermal, for instance.
We encourage governments to embrace all aspects of the Energy Trilemma. Energy policy should recognise that reaching net-zero should not be achieved by decarbonisation at all costs (and the perceived disowning of carbon emissions that gas imports can imply) but should also be affordable, in terms of the livelihoods of local communities as well as energy costs to the consumer, and provide security of jobs (albeit shifting in nature in a phased way) as well as maintaining security of supply for all components of our energy mix. For this reason we believe that the UK using its own natural gas, alongside the ambitious growth of CCUS to minimise CO2 emissions in the world-leading low-carbon industrial clusters, can enable a ‘Just Transition’ for the UK North Sea and can makes economic sense without increasing global CO2 emissions.
Professor Martin Blunt, Professor of Flow in Porous Media
Professor Paul Fennell, Professor of Clean Energy
Professor Niall Mac Dowell, Professor of Energy Systems Engineering
Professor Geoffrey Maitland, Professor of Energy Engineering
Professor Ann Muggeridge, Professor of Subsurface Physics
Professor Ronny Pini, Professor of Multiphase Systems
Professor Martin Trusler, Professor of Thermophysics
Imperial College London, Transition to Net Zero Group