UK sets out plans to ramp up oil & gas production and unveils energy price freeze
To tackle the current energy crisis and high prices, the UK government has revealed a set of measures, which will be undertaken to reform the energy market by boosting domestic oil and gas production. The new Prime Minister also outlined plans to put a cap on gas and electricity unit prices and standing charges for each fuel, effectively freezing bills at £2,500 for the average household to help families and businesses cope.
After the UK’s new Prime Minister, Liz Truss, took over the reins from Boris Johnson, who resigned in July following a series of scandals, she is working on taking “decisive action” to support people and businesses with their energy bills, revealing new plans to “tackle the root causes of problems” in the energy market by boosting the domestic energy supply.
This is in line with her victory speech, outlining that energy security and helping consumers will be at the top of her priority list, which was welcomed by Offshore Energies UK – former Oil & Gas UK (OGUK) – earlier this week as “a fresh chance” to renew the nation’s approach to energy security and accelerate the transition to cleaner energies with “careful long-term investment in its home-grown oil and gas resources.”
Therefore, the UK government is now taking action to accelerate domestic energy supply, increase energy resilience and achieve its ambition to make the UK an energy exporter by 2040. This will be done by launching a new oil and gas licensing round “as early as next week,” which is expected to lead to over 100 new licences. The plan also includes lifting the moratorium on UK shale gas production, enabling developers to seek planning permission where there is local support, which could get gas flowing in as soon as six months.
Jacob Rees-Mogg, UK Business and Energy Secretary, elaborated: “The global headwinds caused by Russia’s war in Ukraine, Putin’s weaponisation of energy and the aftermath of Covid, have exposed the need to strengthen Britain’s energy security for the good of the nation and the millions of households and businesses who will struggle to meet the cost of bills this winter. The action we are taking today will reduce that worrying burden in the short term and will invigorate the long-term reforms we need to complete, to resolve the underlying problems in the energy market and ensure the British people enjoy affordable and plentiful energy in future.”
Furthermore, the UK intends to drive forward the acceleration of new sources of energy supply from the North Sea oil and gas to clean energy like nuclear, wind and solar, continuing to progress up to 24GW of nuclear by 2050, with Great British Nuclear helping to set the direction of getting new nuclear projects online in the UK. The government will undertake fundamental reforms to the structure and regulation of the energy market through recommendations from a new review of the UK Energy Regulation.
In addition, the UK intends to launch a review to ensure it is meeting its net-zero by 2050 target in an “economically-efficient way,” given the altered economic landscape. This will be chaired by Chris Skidmore MP and reported by the end of this year to ensure “delivering the target is not placing undue burdens on businesses or consumers.”
Commenting on the new measures to be undertaken to ensure energy security and affordability, Chancellor Kwasi Kwarteng, remarked: “Millions of families and businesses across the country can now breathe a massive sigh of relief, safe in the knowledge that the government is standing behind them this winter and the next. The price of inaction would have been far greater than the cost of this intervention. Not only can we provide urgent support now, but the beauty of our scheme is that it will also bring down inflation, helping tackle wider cost of living pressures.”
Energy bill freeze
Truss intends to tackle the root causes of the issues in the UK energy market through increased supply and a new Energy Price Guarantee, which means that a typical UK household will pay no more than £2,500 a year on their energy bill for the next two years from 1 October. This Energy Price Guarantee, which will supersede the existing energy price cap, limits the price suppliers can charge customers for units of gas and takes account of temporarily removing green levies, worth around £150, from household bills.
According to the UK government, this guarantee will save the average household £1,000 a year based on current energy prices from October and along with the announced £400 energy bills discount for all households, it will bring costs close to where the energy price cap stands today. The government believes that this action will deliver benefits to the economy, boosting growth and curbing inflation by 4-5 points, reducing the cost of servicing the national debt.
Moreover, as businesses have not benefited from an energy price cap and are not always able to fix their energy price through fixed deals, many are reporting projected increases in energy costs of more than 500 per cent. Bearing this in mind, a new six-month scheme for businesses and other non-domestic energy users will offer equivalent support as is being provided for consumers. Once the initial six-month scheme is over, the government intends to provide ongoing, focused support for vulnerable industries.
UK’s new Prime Minister, Liz Truss, explained: “Decades of short-term thinking on energy has failed to focus enough on securing supply – with Russia’s war in Ukraine exposing the flaws in our energy security and driving bills higher. I’m ending this once and for all. I’m acting immediately so people and businesses are supported over the next two years, with a new Energy Price Guarantee, and tackling the root cause of the issues by boosting domestic energy supply. Extraordinary challenges call for extraordinary measures, ensuring that the United Kingdom is never in this situation again.”
In addition, schemes previously funded by green levies will continue to be funded by the government during this two-year period to ensure the UK’s investment in home-grown, secure renewable technologies continues. The UK is also taking action to “significantly reduce” the cost over time.
In line with this, a new Energy Supply Taskforce, led by Madelaine McTernan, has begun negotiations with domestic and international suppliers to agree on long-term contracts that reduce the price they charge for energy and increase the security of its supply. Additionally, the Taskforce and Department for Business, Energy and Industrial Strategy will negotiate with renewable producers to reduce the prices they charge as well.
On the other hand, HM Treasury has also announced a joint scheme, working with the Bank of England, to address the liquidity requirements faced by energy firms operating in UK wholesale gas and electricity markets. The UK disclosed that the Energy Markets Financing Scheme, which will be used as a last resort to provide short-term financial support, will enable stability to both energy and financial markets, and the economy, reducing the eventual cost for businesses and consumers.