FPSO Petrojarl Knarr was picked for the Rosebank development; Source: Teekay

Will Labour’s plans to turn Britain into renewables’ superpower shut down UK’s oil & gas sector?

Recent reports indicate that the UK’s Labour Party has set its mind on bringing new oil and gas exploration in UK waters to an end while ushering in a green energy future by investing heavily in low-carbon and renewable energy sources. This would give a massive boost to Britain’s wind, tidal, and nuclear energy aspirations, but what would it mean for the country’s energy security? Will the UK need to rely more on costly imports to bridge the gap in energy supply?  

FPSO Petrojarl Knarr was picked for the Rosebank development; Source: Teekay

Following the Sunday Times’s article that Sir Keir Starmer, Leader of the Labour Party of the United Kingdom, intends to announce plans to block all new North Sea oil and gas developments next month when he sets out his net-zero energy policy, Jonathan Ashworth, the shadow work and pensions secretary, provided a confirmation of sorts while speaking to Trevor Phillips on Sky News.

Ashworth, who underscored that the UK had to move towards more renewable sources of energy, remarked: “What we’ll be doing in the coming weeks is outlining how we want to invest in the green jobs of the future to bring bills down to create a more sustainable energy supply. We’ll be outlining that in a significant mission in the coming weeks and we’ll be announcing more details then.

“But we know we’ve got to move to more renewable sources of energy. It’s important for our climate change commitments, but it’s also the way in which we can bring energy bills down for consumers. This isn’t about shutting down what’s going on now. We will manage those sustainably.”

Based on this, Labour does not plan to shut down existing oil and gas wells as it will manage them in a sustainable manner, thus, drilling activities on projects that have already received a stamp of approval will go ahead. However, the Rosebank and Cambo projects would be blocked, as Labour already expressed its opposition to greenlighting these projects.

If Labour wins the elections, its energy roadmap envisages making the UK a clean power by 2030 by harnessing the power of marine and tidal energy, quadrupling offshore wind, doubling onshore wind, tripling solar power and ensuring the long-term security of nuclear power. This is consistent with Labour’s plans from 2019, when it reaffirmed its offshore wind commitment in its General Election manifesto, claiming it would build 7,000 new turbines in UK waters, delivering 52 GW of offshore wind by 2030.

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The plans to stop investments in new oil and gas projects do not come as a surprise since Sir Starmer called on other countries to form “a clean power alliance” to rival the OPEC group of oil exporting countries during a speech at the World Economic Forum in Davos.

“What we’ve said about oil and gas is that there does need to be a transition. Obviously, it will play its part during that transition but not new investment, not new fields up in the North Sea, because we need to go towards net-zero, we need to ensure that renewable energy is where we go next,” emphasised Sir Starmer at Davos earlier this year.

In a bid to transform the UK into “a world leader” in renewables and a clean energy superpower, Labour’s proposals seem to put the UK at risk of becoming over-reliant on wind power, even though Ashworth claims that it is “a mischaracterization” to say that Labour’s policies all depend on the wind energy.

“Yes, we need to invest in wind. We need to invest in tidal; we need to invest in nuclear. We need more sustainable sources of energy supply in order to bring the bills down for consumers and actually create jobs in this green transition,” explained Ashworth.

As this comes at a time when the UK’s windfall tax hike on oil and gas producers’ profits has led multiple players to contemplate downgrading their UK portfolio or even exiting the North Sea to find other oil and gas playgrounds with a lower-tax environment, many, including the UK’s representative body for the offshore energy industry, believe that Labour’s proposals on oil and gas would undermine the country’s energy security, threaten jobs, and send import bills surging.

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David Whitehouse, OEUK’s chief executive, commented: “People wouldn’t forgive anyone who shut down Britain’s oil and gas industry only to replace it with imports of foreign oil and gas. Everyone is clear that the energy system must change but business and government must do this in partnership. Labour’s approach risks sending the wrong signals. Labour’s proposals are also very unclear, especially on costs.

“Our sector now needs clarity on the detail of Labour’s plans including analysis on what they mean for jobs, energy security, imports, and Britain’s overall economy. Homegrown production of oil and gas means we avoid costlier, less secure, and higher carbon footprint imports. Investment in UK production would also support the infrastructure and workforces needed to make cleaner, more affordable energy in the UK, for the UK.”

Offshore Energies UK (OEUK) points out that the UK gets 76 per cent of its total energy from oil and gas, thus, having its own supplies is seen as “a vital bulwark against future global shortages.” In line with this, Labour has been warned against “simplistic” proposals to end new licenses for oil and gas, as the dangers of such a move encompass soaring reliance on imports, increased import bills, and reduced energy security. OEUK also reiterated its plea for the party to engage further with the industry to strike the right balance between energy security and the green shift.  

Furthermore, Offshore Energies UK underlined that Labour should take a more collaborative approach to the UK’s offshore industry, putting the emphasis on the approach of the U.S., Norway, and many countries in the Middle East working with their own energy sectors to support domestic supplies while capitalising on the industry’s expertise to expand low-carbon technologies like wind, and mass hydrogen production. 

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According to OEUK, the oil and gas industry remains essential for UK consumers’ energy security with about 24 million UK homes relying on gas boilers for heat and hot water. The country also has 32 million vehicles running on petrol or diesel while about 42 per cent of the UK’s electricity comes from gas-fired power stations.

“As we build that future there is no simple choice between oil and gas on the one hand and renewables on the other. The reality is that to keep the lights on and grow our economy, we will need both. By the mid-2030s, oil and gas will still provide for 50 per cent of our energy needs,” added Whitehouse.

In addition, the UK’s offshore sector is perceived to be vital for the nation’s economic well-being, supporting over 200,000 skilled jobs across the country and adding over £20 billion (almost $24.7 billion) to the economy this year alone, as it paid an estimated £11 billion (nearly $13.8 billion) in taxes in the 2022/23 fiscal year.

Moreover, OEUK’s Business Outlook Report recently warned that political tensions and uncertainties over the energy sector’s future were making investments by companies in oil and gas even harder to secure. Without new investment in domestic production, it is forecasted that by 2030 the UK would be forced to import 80 per cent of its oil and gas compared to around half based on existing projects. The cost of energy imports amounted to £117 billion (around $144.42 billion) in 2022, compared to £54 billion (about $66.7 billion) in 2021.

“We urge Sir Keir Starmer and Rachel Reeves to fulfil their promise to listen to industry and engage with our workers. We need to meet our climate goals but without undermining UK energy security, the economy and our skilled workforces – the very people needed to deliver lower carbon, secure and affordable energy,” concluded Whitehouse.