Currently, the UK consumes twice as much oil and gas as it produces, and this ratio is projected to increase in the coming years. Recent events, such as the conflict in Ukraine, have emphasized the importance of energy security.  

To address this issue, it is evident that a policy of continued domestic oil and gas supply, including exploration for new fields with ultra-low emissions, is necessary. This approach would not only slow the decline of UK production but also extend the lifespan of infrastructure that is essential for upcoming carbon, capture, utilization and storage (CCUS) and hydrogen projects. 

The fiscal and political pendulum

While the UK aims to be a leader in the energy transition, its upstream sector contributes less than 1% to the global oil and gas supply mix whilst many other producer countries continue to invest actively. The current Conservative government expresses its intention to fully utilize North Sea resources; however, the industry faces investment uncertainties, due to policies like the 2022 Energy Profits Levy, which introduced a windfall tax and raised the marginal rate to 75%, one of the highest globally. Consequently, several companies have made significant downward adjustments to their investment plans. It is likely that Labour government in 2024 may attempt to reduce long-term investment further, given its recent announcements on plans to ban any new oil and gas licencing rounds altogether.

However, there are signs that the pendulum seems to be swinging back the other way, with the recent introduction of a mechanism that would lower the tax rate to a more globally competitive 40%, if oil and gas prices fall. This trigger would be activated when oil reaches $71.40/bbland gas reaches £0.54 per therm for two consecutive quarters. Additionally, the rhetoric coming from the Labour leadership suggests that the party has started to backtrack on its previous policy statements regarding blocking new North Sea oil and gas projects, due to negative comments from labour union leaders and strong industry pushback.

From a macro perspective, global demand and clean energy growth arenot on track to meet the International Energy Agency’s (IEA) ambitious net zero scenario. The ongoing energy crisis highlights the challenges of achieving net zero when faced with fossil fuel supply shortages. This situation leads to global socioeconomic costs, heightened coal consumption, and increased supply chain expenses and inflation, all of which undermine the progress of clean technology. Consequently, the EIA now underscores the arduous, yet essential task of aligning the reduction in fossil fuel demand with the growth of clean energy, to facilitate a smooth and orderly transition. 

The strong case for UK oil and gas

Upstream expertise, technology and investment are vital in achieving the UK’s low- carbon future. The sector provides significant economic benefits to the UK, supporting over 200,000 skilled jobs and reducing the impact on the balance of payments caused by increasing reliance on net imported oil and gas. In Q3 2022, the UK spent £13 billion on net oil and gas imports alone. 

Ensuring a secure, well-organized energy transition under UK control is supported by domestic supply. The North Sea Transition Authority, the main regulator for the UK upstream sectors, enforces rigorous regulations that set global standards in environmental, social, and governance (ESG) practices, similar to Norway. These practices guarantee responsible operations in the oil and gas industry. The UK has demonstrated global leadership through the North Sea Transition Deal, a mutually beneficial commitment between the government and industry, aimed at reducing scope 1 and 2 emissions in the sector and accelerating investments in CCUS and hydrogen technologies. Investing in UK supply not only mitigates the risks associated with excessive dependence on loosely regulated import regimes but also addresses the country's growing reliance on imports.

Investing in UK oil and gas is crucial for decarbonization and enabling the delivery of Net Zero by 2050. The business model for many North Sea exploration and production companies relies on low-emissions field tie-backs to extend the lifespan of existing production facilities and to generate meaningful returns by operating them efficiently. As a result, UK gas supply has an emissions intensity 65% lower than the average for imported LNG, while UK oil supply is 20% below the global average for oil emissions intensity. Planned new fields aim for emissions intensities more than 10 times lower through leveraging existing infrastructure and , energy integration, such as the powering of production facilities directly from adjacent offshore windfarms. The free cash flow generated from these new fields will support the decarbonization of the UK economy, through reinvestment via the deployment of CCUS and hydrogen production. 

The UK has benefited greatly from having a world-class petroleum basin. The industry has produced over 46 Bbbl of oil and gas equivalent, contributed over £400 billion in tax revenue and has provided secure domestic energy and high-productivity jobs, making a significant positive impact on the UK economy. The UK now has the opportunity to repurpose this great powerhouse to create a world-class carbon storage resource. Storage estimates by the British Geological Survey identify ,  78 billion tonnes of geological storage capacity. For reference, these volumes equate to the , equivalent of all UK cumulative emissions since the onset of the industrial revolution  some 300 years ago. 

In recognition of this, the country has made significant progress in developing regulatory and fiscal models for capture, transport, and storage, and recently held its first carbon storage licensing round, resulting in the North Sea Transition Authority awarding some 20 new carbon storage licenses in May 2023. In March, the UK government allocated £20 billion for the early deployment of carbon storage projects, providing further support to the sector. 

Powering the energy transition 

A robust oil and gas industry will play a crucial role in powering and funding the energy transition. Fiscal stability is essential for attracting investment and enabling the deployment of low-carbon technologies. Public statements of support from policymakers and politicians are vital in providing the industry with the confidence and certainty it needs to thrive. Providing and maintaining stable fiscal policies is critical for attracting investment and maintaining a vibrant industry that contributes both to UK energy security and to the UK's decarbonization goals. By embracing the expertise and technological advancements of the oil and gas sector, the UK can move forward with an achievable and affordable energy transition. 

Nick Terrell, UK Subsurface Task Force

Nick Terrell is Industry Chair of the UK Subsurface Task Force, an independent forum of subsurface experts, scientists and senior professionals in industry and academia, collaborating with regulators, policy makers and other key stakeholders towards an orderly transition to Net Zero 2050. The task force reports to the North Sea Transition Forum, the tripartite body that provides senior government and industry leadership for the offshore oil and gas industry and emergent carbon storage sector. Nick has roughly 20 years of broad industry leadership experience in a range of upstream energy- focused roles. He is co-founder of Carbon Catalyst, an independent company focused exclusively on reducing CO₂ emissions via CCUS. Founded in 2020, the company has built a portfolio of high-quality carbon transport and storage projects in the North Sea. He is also UK Country Manager for Finder Energy, a publicly listed upstream company based in Perth, Australia, and a recent new entrant to the UK North Sea.

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