British Government Signals Support for Oil and Gas Industry
The British government said Monday that it would issue “hundreds” of new licenses for oil and natural gas exploration in the North Sea, as concerns about energy security and jobs at least momentarily outweigh efforts to address climate change.
“It’s vital that we bolster our energy security and capitalize on that independence, “ Prime Minister Rishi Sunak said in a statement.
At the same time, the government announced that it would support two major plans for capturing carbon dioxide emissions from power plants and factories, and injecting the gas into depleted reservoirs under the North Sea. Such “carbon capture” projects tend to be mostly led by energy companies and make use of their expertise and infrastructure.
The announcements were an indication that the fate of the North Sea oil and gas industry is becoming an important battleground for Britain’s next general election, in 2024. The governing Conservatives appear to have decided that protecting the oil and gas industry could be a vote winner over the opposition Labour party, which has threatened to halt new drilling permits if it wins next year.
“The fate of the industry will to some extend on who governs” after the election, said Gail Anderson, research director for the North Sea at Wood Mackenzie, a consulting firm.
The announcement largely repackages existing programs, but could bolster the confidence of oil and gas producers in Britain. Unlike most other European countries, Britain has a sizable though declining oil and gas industry.
The political and economic environment for such companies, which employ around 200,000 people in Britain, has soured in recent months. Last year, the government imposed so-called windfall taxes on extraction from the North Sea, cutting into the profitability of oil companies and raising questions about further investment.
The first new exploration licenses are expected to be issued this fall from among applications that were already under evaluation under an existing auction round for offshore acreage. What is important to the industry, Ms. Anderson said, is that the government is now promising that there will be future licensing rounds.
But if a new government could rescind the pledge for new exploration, and recent drilling has produced meager results.
The support for carbon capture and storage will please oil and gas companies, including Shell and BP, the Britain-based giants. “This is an important step forward,” Shell said in a statement.
Shell is the “technical developer” of the Acorn project in Scotland — one of the two carbon capture projects that received government backing on Monday. BP has a 40 percent stake in the other project, called Viking, and is involved in two other Britain-based projects.
The government says that it is committed to providing up to £20 billion, about $25.7 billion, for such projects, which it says could create up to 50,000 jobs.
The energy industry and the government say that Britain and other countries are likely to need some oil and gas for decades. It is preferable from the point of view of energy security and for maintaining jobs to produce those fuels domestically, the government argues.
Domestically produced gas also tends to be cleaner than liquefied natural gas, the government said Monday, because it is not transported over long distances and more tightly regulated.
Others oppose new oil and gas projects because they will add to global supplies of fossil fuels, which add greenhouse gases to the atmosphere. Environmentalists are also skeptical about carbon capture because, they say, it is being used to preserve the fossil fuel industry.
“This is an announcement about yielding to vested interests to carry on something that looks like business as usual,” said Doug Parr, chief scientist of Greenpeace UK.
Some 115 applications for new exploration in the North Sea have been under evaluation since last year, but it remains unclear if Britain’s announcement on Monday will produce a significant increase in investment and production. Companies making investment decisions will still need to take account of the closeness of a general election and the possibility of new taxes being imposed.
On the carbon capture front, British oil and gas companies are clearly interested in pursuing these initiatives, but they are only moving forward slowly, partly because they are waiting for government decisions on support.
“There is a lot of uncertainty over how much funding the projects will get and the timing of that funding,” said Lucy King, a senior analyst for carbon capture at Wood Mackenzie.
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