Oil and gas licences to be dished out annually, King’s Speech will confirm
The government has announced plans for annual oil and gas licensing rounds in the King’s Speech tomorrow, as it seeks to draw battle lines with Labour over energy policy.
Downing Street has confirmed legislation will be set out in the King’s Speech tomorrow, which will require the North Sea Transition Authority (NSTA) to invite applications for licences every year.
The King will outline the decision as part of a raft of government pledges for the upcoming parliament.
Prime Minister Rishi Sunak argued that that this would enable the UK to transition to net zero in a pragmatic way, relying on less carbon intensive domestic fossil fuel supplies rather than imports.
He said: “I am proud that the UK is a world leader in reducing emissions, and of our new plan to transition to net zero without adding undue burdens on households and securing the country’s long-term interest.
Analysis released by the NSTA in July revealed that the carbon footprint of domestic gas production is around one-quarter of the carbon footprint of imported liquefied natural gas.
The UK depends on oil and gas to meet 75 per cent of its energy needs — comparable with rival advanced economies such as Germany (76 per cent), US (81 per cent) and Japan (85 per cent).
Downing Street has included oil and gas exploration in its energy security strategy alongside ramping up renewables.
Energy security and net zero secretary Claire Coutinho cited data from the Climate Change Committee, which calculates oil and gas will continue to be in the energy mix in the push for net zero.
“As energy markets become more unstable it is just common sense to make the most of our own homegrown advantages and use the oil, gas, wind and hydrogen on our doorstep in the North Sea. Rather than importing dirtier fuels from abroad, we want to give industry the certainty to invest in jobs here and unlock billions of pounds for our own transition to clean energy,” she said.
The move follows Sunak unveiling 100 new oil and gas licences this summer, and the NSTA revealing the first 27 winners from the latest 33rd offshore licensing round last week.
It contrasts with Labour’s pledge for no new oil and gas licences if it wins the next election.
While opposition leader Sir Keir Starmer will honour existing investment pledges, such as the recent approval of Rosebank, he has consistently maintained that new licences will not be issued, with Labour instead pushing for more green investment.
Each annual licensing round will only take place if key tests are met that support the transition to net zero. The first test is that the UK must be projected to import more oil and gas from other countries than it produces at home.
The second is that the carbon emissions associated with the production of UK gas are lower than the equivalent emissions from imported liquefied natural gas.
If both these tests are met, the NSTA will be required to invite applications for new licences annually.
The government has faced a balancing act between criticism from green groups and the opposition for watering down climate pledges and concerns from the oil and gas sector windfall taxes are too high – deterring investment.
Oil and gas producers Enquest and Harbour both recently reported swings from profits to losses, blamed on the Energy Profits Levy — which establishes an effective 75 per cent tax rate in the North Sea.
David Whitehouse, chief executive of industry lobby group Offshore Energies UK, warned the government last month that the tax was jeopardising investment.
He told CityAM: “There is no doubt windfall taxes discourage investment, and mapping out a future where we see ourselves moving to a long-term fiscal regime is really important.”