North Sea oil and gas: what is the new licensing scheme, and will it cut bills?

The government has confirmed its plans to grant new North Sea oil and gas licences every year at the opening of parliament, deepening a political fault line between the Conservatives and Labour, and angering environmental campaigners who argue it undermines efforts to reach net zero. Here, we examine the move.

What has been announced?

On Tuesday, King Charles announced the government’s intentions to introduce legislation in this parliamentary session which will allow oil and gas companies to bid for new licences to drill for fossil fuels every year.

The king told peers and MPs that the government will introduce legislation to strengthen the UK’s energy security to “reduce reliance on volatile international energy markets and hostile foreign regimes”.

He added: “This bill will support the future licensing of new oil and gasfields, helping the country to transition to net zero by 2050 without adding undue burdens on households.”

Ministers will also “seek to attract record levels of investment in renewable energy sources and reform grid connections” to build on the UK’s “track record of decarbonising faster than other G7 economies”, he said.

What are oil and gas licensing rounds?

The process lets companies apply to explore and develop energy projects, and those applications are assessed by the regulator, the North Sea Transition Authority. The average time from licence award to production is about five years. Up to now, there have been 33 such rounds. The latest round opened in October last year, and last week the first 27 licences were approved for projects in central and northern areas of the North Sea and west of Shetland. Up to 100 new licences could be approved this round, which means the most applications (115, by 76 companies) since 2016/17.

Why is the government doing this?

The North Sea has just under 300 active oil and gasfields, but more than half of them will have ended production by 2030. Ministers hope to “max out” the oil and gas reserves in region which has been plundered since the 60s.

Ministers have claimed the move will provide job security for 200,000 workers. The move also appears to be part of a wider electoral strategy push back on net zero policies by Rishi Sunak. Making the licensing process annual would give structure and certainty for companies hoping to exploit those reserves, industry sources believe.

Critics of the government claim that the move is a cynical pre-election ploy to create a dividing line with the Labour party. “If there was a prize for political posturing, Rishi Sunak would win best in show,” said Jamie Peters, the climate coordinator at Friends of the Earth. “The fact remains that more North Sea oil and gas will do nothing to reduce bills or improve energy security.”

Rishi Sunak
Rishi Sunak is attempting to create a dividing line with the Labour party, critics say. Photograph: Euan Duff/PA

Will this improve Britain’s energy security?

Securing adequate gas and electricity supplies has been an important focus for ministers since Russia began weaponising gas amid the Ukraine conflict. Although Russia made up just 4% of UK gas supplies prior to the war, Russia’s cuts to European supplies have knock-on effects. There were fears a potential complete shut-off could cause blackouts in the UK last year.

Much of Britain’s gas comes from the North Sea, as well as via pipeline from Norway and by tanker from countries such as the US. However, companies are not obliged to supply the UK with oil and gas extracted from the North Sea, meaning Britain could still face energy shortages even if the licences were granted.

Sam Richards, from the pro-growth campaign group Britain Remade, said: “Including new legislation to mandate annual North Sea oil and gas licensing rounds in the king’s speech is little more than political posturing that is unlikely to increase domestic oil and gas production.”

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Will this bring down bills?

No. Since the onset of the energy crisis, which began in late 2021 and was exacerbated by Russia’s invasion of Ukraine early last year, bills have been far higher than historic averages. The cost of household energy bills are set by a multitude of factors, chiefly global gas markets, which have been rising of late. Meanwhile, pump prices for drivers are also heavily influenced by global oil prices.

Claire Coutinho, the energy secretary, has said that new production “wouldn’t necessarily bring energy bills down” but could “indirectly”, if money raised in taxes is used to back renewable energy projects.

Ed Matthew, the campaigns director at E3G, an independent climate thinktank, said: “If Rishi Sunak was serious about cutting energy bills and boosting energy security he would be using the king’s speech to double down on home insulation and homegrown renewables.”

Amid soaring bills, energy firms were hit with a windfall tax on North Sea projects last year, but the levy has been criticised for allowing significant tax breaks for producers.

Where does Labour stand?

The licensing rounds could put Labour in a bind, if the legislation passes. Sir Keir Starmer has committed to not allowing any new exploration licences, although existing fields will not be shut down. Instead, he has plans to ramp up renewables – including through a publicly owned energy company, Great British Energy – if elected.

However, his stance has caused friction with the party’s union backers, who are keen to protect existing jobs reliant on fossil fuels, despite hopes of creating a prosperous green energy industry.

Is there any consideration for net zero in Sunak’s plans?

Some. Each annual licensing round will only go ahead if tests are met that support the transition to net zero. Namely, the UK must be forecast to import more energy from other countries than it produces domestically, and carbon emissions associated with the production of UK gas will need to be lower than the equivalent emissions from imported liquefied natural gas.

However, even the current round of licensing laws are already predicted to send a “wrecking ball” through the UK’s climate commitments.


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