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North Sea Oil Expansion: Why is it Controversial?

In this article, we'll explore the implications of UK Prime Minister Rishi Sunak's decision to expand licences for North Sea oil and gas exploration.
Green News
2023-08-02T00:00:00.000Z
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On July 31st, 2023, UK Prime Minister, Rishi Sunak, reaffirmed the upcoming issuance of over 100 North Sea oil and gas licences, aimed at increasing domestic fossil fuel extraction. The licensing round was initially announced by the North Sea Transition Authority in October 2022, however, Rishi Sunak’s recent announcement signals a growing concern that the UK Government may be weakening its resolve on climate change issues. 

👉 In this article, we'll explore the implications of UK Prime Minister Rishi Sunak's decision to expand licences for North Sea oil and gas exploration and extraction.

An overview of the history of North Sea oil and gas

The North Sea is home to the vast majority of Europe’s oil reserves and is one of the largest non-OPEC producing regions in the world. Its oil wealth is concentrated mainly in the waters of the United Kingdom and Norway, however, reserves can also be found in waters belonging to Denmark, the Netherlands and Germany.

North Sea oil discovery

North Sea oil and gas was first discovered back in the early 1960s, with natural gas being brought ashore in the UK in 1967 and oil in 1975. However, challenging conditions and complex and expensive production methods meant that it wasn’t until the 1980s that North Sea oil extraction became economically viable. 

👉 By the early 1980s, the United Kingdom had become a net exporter of oil, achieving the same status for gas by the mid-1990s.

Peak production

The 1990s and early 2000s marked a golden era for North Sea oil production, with the region reaching its peak of 6 million barrels of oil a day in 1999. Natural gas followed suit, reaching its height in 2001. 

The production of oil and gas in the North Sea resulted in the creation of thousands of new jobs in various capacities, including exploration, drilling, production, and related services. The prosperity of the sector also translated into considerable revenue for the UK government. 

However, the UK Government's management (or mismanagement) of oil and gas income has led to debate over whether the funds were appropriately managed for long-term benefits.

oil rig in the middle of the ocean

The UK Government’s mismanagement of North Sea oil and gas income

The UK's handling of the North Sea oil boom stands in sharp contrast to that of Norway, casting a spotlight on the differences between their revenue management and state control. In 2020 for example, the UK saw a comparatively small intake of £0.2 billion in revenue from North Sea oil, a figure dwarfed by Norway's £9 billion. This large difference boils down to Norway's decision to maintain state ownership of its oil and gas industry, compared to the UK's privatised approach. 

Tracing back to the Thatcher era, the UK's missteps in managing North Sea oil began with a wave of privatisation. Critics say that this move allowed the income of the oil boom to flow disproportionately into the pockets of the wealthy, inflating house prices and creating social inequalities. 

While the UK channelled its wealth into tax cuts and consumer indulgences, Norway took a long-term view, channelling profits into a sovereign wealth fund, which is now worth over $1.3 trillion, making Norway one of the wealthiest nations. 

As the UK looks to the future, the consequences of its approach to North Sea oil are beginning to manifest. With the decommissioning cost of rigs and infrastructure expected to reach £51 billion by 2065, and tax allowances for oil and gas companies predicted to exceed £19 billion, the financial burden continues to escalate. 

The discovery of new oil and gas fields in recent years adds complexity to the situation, with concerns over environmental impacts being weighed against the UK’s potential treasury windfall from these resources.

The decline of North Sea oil production

“The North Sea has served as a significant source of oil and gas for the UK over several decades. However, in recent decades, the region has faced a decline in production due to factors such as ageing infrastructure, maturing fields, and dwindling reserves. These challenges have made it increasingly difficult for companies to extract oil and gas in a cost-effective manner.”

Following the 1999 high, oil and gas production across the North Sea gradually declined. The UK Continental Shelf (UKCS) witnessed a steady decrease, plunging from its peak of 4.5 million barrels of oil equivalent per day (boe/day) in 1999 to a mere 1.4 million boe/day in 2014 (note that barrels of oil equivalent incorporates both oil and gas extracted, whereas when we refer to barrels of oil this only accounts for liquid oil produced).

But despite declining production in the North Sea, according to official UK Government reports, the region still holds significant levels of petroleum oil reserves. The NTSA (North Sea Transition Authority) estimates that proven and probable UK continental shelf reserves amount to 4 billion boe, though research suggests that waters off the coast of the UK coil hold enough oil and gas to provide 15 billion barrels of oil equivalent. 

Though the question is not whether or not we can extract more oil from the North Sea - it’s whether we should extract more oil, given the growing climate crisis that we face.

protestors holding a sign that says 'plane over profit'

North Sea Oil Licensing in the UK

In the United Kingdom, oil and gas exploration and production licences are regulated by the North Sea Transition Authority (NSTA - formerly known as the Oil and Gas Authority). Prior to this, licences to extract oil and gas were administered by the Department of Energy and Climate Change (formerly the Department of Trade and Industry - DTI).

The UK continental shelf (UKCS) is split into quadrants, with each quadrant being further divided into 30 blocks. Some of these blocks may be further subdivided into part blocks where sections have been relinquished by previous licence holders.

The UK releases licences for North Sea oil and gas extraction via annual licensing rounds. Though the licensing rounds were temporarily put on hold between 2019 and 2022 while the UK Government carried out a ‘climate compatibility check’. 

The licensing round resumed again in 2022 when the UK Government made the decision to begin the process of allocating over 100 different licences covering 900 different locations for exploration. The UK claimed that reopening the licensing for oil and gas exploration and production would help with long-term energy security in the UK - something that has become a growing concern in recent years.

Westminster parliament in London

Energy security in the UK

Like many countries around the world, the United Kingdom is grappling with the difficult task of reshaping its energy policies, a matter made all the more urgent by global tensions such as the Ukrainian crisis. 

The UK’s dependency on fuel from countries such as Russia has underscored the need for a shift towards self-reliance in energy. However, the challenge is complex: coupled with the desire to be energy independent is the need to eliminate greenhouse-gas emissions by 2050, requiring a complete overhaul of the UK’s energy infrastructure. This includes replacing traditional power sources with cleaner, electric alternatives for everything from home heating to transportation.

Complicating matters further is the immediate need to control energy costs, particularly in light of recent spikes in gas prices that are severely impacting household budgets. It's a complex situation that demands innovation, investment, and careful balancing of environmental goals with economic realities.

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Rishi Sunak’s decision to expand North Sea oil production

In July 2023, Prime Minister Rishi Sunak announced the UK government's intention to issue more than 100 new drilling licences in the North Sea as part of a strategy to maximise domestic oil and gas production. This policy, described as "maxing out" the country's fossil fuel reserves, has faced strong criticism from environmental organisations and some political figures, including members of his own party, for conflicting with the UK's climate goals.

However, Prime Minister Rishi Sunak argued that the plan aligns with the country's commitment to reach net-zero emissions by 2050, stating that domestic production is more efficient than importing oil and gas.

Critics have expressed concerns that the plan could jeopardise the UK's climate commitments at a critical time. They argue that the focus should be on transitioning to a low-carbon economy and investing in renewable energy sources. Former minister Chris Skidmore, who led the UK’s net zero review, called out the decision, stating that it’s “the wrong decision at precisely the wrong time”.

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Does the UK really need more oil and gas?

The UK's dependence on fossil fuels remains significant, with the energy source meeting about 75% of the country's total energy demand. This is largely due to the use of gas boilers in homes and petrol or diesel in vehicles, as well as gas plants generating a significant proportion of UK electricity.

👉 To learn more about the UK’s electricity supply energy mix, why not check out our article

Yet, the country's domestic oil and gas reserves, particularly in the North Sea, are dwindling rapidly. Despite this, industry insiders argue that some level of exploration is necessary to prevent a rapid industry collapse, which could increase the UK's dependence on imports and negatively impact the country’s economy and employment.

The geopolitical situation, particularly Russia's invasion of Ukraine, has also raised concerns about the risks of depending on foreign energy supplies. While the UK imports gas from Norway, Europe, Qatar, and the US, the carbon footprint of these imported supplies can be significantly higher than those of domestically produced oil and gas.

However, research purports to show that new oil and gas fields being considered in the North Sea would provide only a minimal impact on the UK's energy security, supplying enough gas for merely a few weeks a year between 2024 to 2050, and around five years of oil demand. Campaigning group Uplift conducted the study, which also highlights that around 60% of the UK's current gas production is exported to the highest bidder, and 80% of North Sea oil is exported.

The decision also goes against advice from the International Energy Agency which has advised against new oil and gas exploration, stating that it’s vital if we are to have any hope of limiting global temperature rises to 1.5°C above pre-industrial levels.” 

👉 To learn more about the pros and cons of fossil fuels, take a look at our article which explores potential alternatives.

How bad for the environment is the decision to grant new North Sea oil and gas licences?

The carbon impact of the 100 new licences for oil and gas production in the UK is likely to be relatively small, with many of the licences granted not actually proceeding to full development. And despite the move by the UK Government, the North Sea oil and gas industry is still on a steady decline, with industry projections forecasting a significant drop in production by 2050. This means that even with new developments, the UK will likely remain a net importer of oil and gas. 

However, the UK Government’s recent enthusiasm for oil and gas development is raising international concerns. Some view the push for new oil and gas as a challenge to the nation's climate credibility.

Climate activists are also expressing frustration over the UK's stance on fossil fuels, believing the nation could lead in moving away from oil and gas. This discontent is magnified by the UK's apparent wavering position on other climate commitments, including improving energy efficiency in rental homes, phasing out petrol and diesel cars by 2030, and fulfilling its £11.6 billion climate aid pledge. 

Together, these factors contribute to a growing sense that the UK may be weakening its resolve on climate change issues and undermining what could be an opportunity to take a world-leading position in environmental responsibility.

👉 Head over to our article on Rishi Sunak’s environmental track record to learn more about his position when it comes to climate matters.

dark ocean water

What does Sunak’s decision mean for the future of North Sea oil and gas?

Prime Minister Rishi Sunak, has always been business focused and his recent support of the decision to grant new exploration licences in the North Sea highlights his prioritisation of UK economic interests ahead of climate considerations - something that raises concerns about the UK Government's commitment to transitioning to cleaner energy sources.

One potential solution that has been floated is the idea that oil and gas revenue could be better utilised this time around and could help fund climate change mitigation efforts. The Office for Budget Responsibility has projected a substantial increase in revenue from oil and gas, reaching £11 billion in the fiscal year 2022-23. This influx of funds could potentially be used to bolster efforts in preparing the UK's infrastructure for a shift toward electric vehicles and heat pumps. Additionally, investments in upgrading the energy efficiency of homes and industrial sites through improved insulation would help reduce carbon emissions.

However, there are concerns that this approach could be seen as a short-term fix, allowing the government to delay more decisive actions toward a sustainable, low-carbon future. Critics argue that relying on oil and gas revenues might undermine the urgency needed to accelerate the transition to renewable energy sources and achieve ambitious climate goals.

While there is consensus on the necessity for the UK to reduce its dependence on fossil fuels, the government's approach, spearheaded by Rishi Sunak's business focus and prioritisation of the oil and gas industry, raises questions about its commitment to prioritising climate change mitigation over economic interests. Utilising oil and gas revenues for climate initiatives could be a potential compromise, but it must be accompanied by more aggressive and forward-looking strategies to ensure the UK's successful transition to a net-zero carbon economy.

What about Greenly? 

At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required. 

If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.

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