The UK faces a stark energy choice: Invest in its offshore industry to build energy security, jobs, and a managed green transition – or rely on other countries for its energy needs, a report has warned.

The UK’s gas imports hit a record high in winter 2021 - underlining the need to manage the nation’s transition to green energy while minimising reliance on other countries, according to the annual Economic Report from OGUK, which represents the country’s oil and gas industry.

It found that the UK had to import 56% of the gas needed to keep the nation’s homes warm and its power stations running between January and March this year – amongst the highest seen for the same winter quarter. Gas imports rose in 2010 and have remained high since. The UK is now among Europe’s largest consumers of gas. About 23 million homes (about 85%) rely on it for central heating and hot water, as well as providing heat and power for business and generating 35% of the UK’s electricity.

The gas imports were needed because demand rose last winter at the same time as UK production fell – partly due to Covid 19 but also because gas output from the North Sea is in long-term decline.

The report also found that, overall, the UK still gets 73% of its total energy from gas and oil, with production from the UK Continental Shelf providing around 70% of this demand.

Electricity generation reflected such trends. Renewables met 42% of electricity demand in 2020 but electricity only accounts for 20% of the UK’s total energy use. Lower wind speeds and higher demand during January - March 2021 created a shortfall, which was met by a 6.8% increase in gas generation - underlining the need for diversity of supply.

North Sea oil and gas remain essential to manufacturing both domestically and internationally used in everyday items such as clothes, medicines and smartphones, as well as vehicles and road surfacing.

OGUK Chief Executive Deirdre Michie said: 
“Oil and gas provided nearly three-quarters of the UK’s total energy last year, and we will continue to rely on them to heat our homes, keep our lights on and create many of our everyday essentials from medicines to mobile phones to road surfaces. About 85% of UK homes are still heated by gas but imported gas hit a record high last year.”

The report also found that investment was key to maintaining domestic oil and gas production - both for the UK’s energy security and for its ability to deliver a homegrown transition towards net zero. It points out that the UK government’s Climate Change Committee has set out a pathway towards net zero, which includes the use of gas and oil - albeit in steadily declining amounts. A failure to invest in new oil and gas fields - to replace those in decline now - would mean the UK could meet only a third of its future needs, leaving the nation more reliant on imports.

The report said such findings underlined the need to “invest in new oil and gas developments to ensure security of supply and underpin a strong domestic industry to build the low-carbon energy ecosystem of the future”.

The report describes how the oil and gas industry is ready to invest £21 billion over the next five years into exploring and producing UK oil and gas. It warns: “In a no-further-investment case, total capital investment could fall to less than £1 billion per year by the middle of the decade as the UK increased its reliance on imported fossil fuels.”

Such investment would have other benefits. In particular, it would protect the UK’s highly skilled offshore workforces whose knowledge of marine and energy engineering will be essential in the transition to renewable and low-carbon technologies. There are about 1,000 UK businesses involved in the UK offshore industry’s supply chain and many are already diversifying to support renewable and low carbon generation such as offshore wind and working to develop new ones such as carbon capture and storage, or hydrogen generation. Ensuring such businesses are supported as they grow now could generate many export opportunities in the future.

The industry has worked with the government to develop a strategy to meet the UK’s needs to maintain energy supplies and transition to a low carbon future. The North Sea Transition Deal, signed this year, is an agreement between government and industry to support UK industry, minimise imports and help retain the skilled workforce needed to move the UK to a net-zero future.

The report also found that:

• Between now and 2050, half the UK’s energy will still need to come from oil and gas.
• UK offshore oil and gas benefits all UK regions. In 2021 the activity generated across the country by the industry - known as gross value added – is forecast to be £31.1 billion. This is 1.7% of the UK total.
• This means that every £1 million spent by the oil and gas sector supports £2.5 million-worth of activity in other parts of the economy.
• The oil and gas sector is forecast to support almost 200,000 UK jobs in 2021.
• It also remains a net contributor to the economy, with £360bn paid to the Exchequer in production tax over the last 50 years, and £33.7bn since 2010.
• A ‘cliff-edge’ transition, by cutting UK gas and oil production, would risk jobs and leave us reliant on imports – damaging our balance of payments but doing nothing to cut demand or emissions.

OGUK’s Chief Executive Deirdre Michie added:
“We all know that change is needed so the question is how fast we make that change. This report shows the reality that cutting off the domestic production of oil and gas faster than we can reduce demand risks leaving us increasingly dependent on other countries that often generate higher emissions.

“Cutting back our greenhouse gas emissions will not be easy, but we will do it faster if we support the companies and people who have the skills to get us there. From energy workers to energy consumers, we all need a managed and fair transition which benefits everyone.

“While the UK continues to use oil and gas, we should make the most of the resources we produce here. The North Sea Transition Deal reduces the need for imported energy, makes us more responsible for our own emissions and supports UK companies and people who are already investing in cleaner energy.”

KeyFacts Energy Industry Directory: Oil & Gas UK