North Sea Oil and Gas

Thursday 10th February 2022 Lords Chamber

Commons Urgent Question

The following Answer to an Urgent Question was given in the House of Commons on Wednesday 9 February.

“There will continue to be ongoing demand for oil and gas over the coming years. It is a clear choice between a transition that secures our energy, protects jobs and leads to innovation in new technologies like carbon capture and hydrogen, and an extinction for our energy sector, as I think the honourable Lady proposes. Flicking a switch and turning off our domestic source of gas overnight would put energy security, British jobs and industries at risk and we would be even more dependent on foreign imports. The way we produce oil and gas is cleaner than in many jurisdictions, so it would be illogical to import them at further expense to Britain and our planet.

The fields referred to in these reports are already licensed, some dating back to as early as 1970, and are now going through the usual regulatory processes. All proposals are subject to a rigorous scrutiny process prior to consent, as opposed to licensing, by our expert regulators, including an environmental impact assessment and a public consultation. No decisions have been taken by the regulators, so it would be inappropriate to comment further on that process. However, to be clear, continued support for Britain’s oil and gas sector is not just compatible with our net-zero goals; it is essential if we are to meet the ambitious targets we set for ourselves while protecting jobs and livelihoods.

As announced last year, and forming part of the North Sea transition deal, we will introduce a climate compatibility checkpoint for any new licences to ensure that any future licensing rounds remain consistent with our goals. Meanwhile, we continue to make progress on developing new nuclear, which I think the honourable Lady also opposes, and renewables that will power our future. Today, we have announced that we are ramping up our options for our flagship renewable scheme, contracts for difference, establishing new industries, boosting investment and creating jobs in our former industrial heartlands.”

11:50

[Baroness Chapman of Darlington (Lab)]

My Lords, the energy price crisis is a fossil fuel crisis. This means we must go further and faster on zero-carbon energy, energy efficiency and clean energy storage. In their White Paper, the Government said that they would

“develop the existing checkpoints in our processes before proceeding with future licensing rounds.”

How is what the Government said yesterday consistent with that approach? Further, can the Minister explain whether he believes that any licensing decisions must be compatible with keeping warming to 1.5 degrees and how the Government will make that assessment?

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I thank the noble Baroness for her question. She is right: we intend to introduce a climate-compatibility checkpoint for all new licences, which will be used to assess whether any future licensing rounds remain in keeping with our climate goals.

[Lord Fox (LD)]

My Lords, in Q3 of last year, which is the last time for which data is available, exports from the UK North Sea were double those of the period in the previous year. At the same time, Ministers were reported to be scrabbling to Kuwait to secure extra supplies of LNG to the UK to meet the energy crisis. This is very counterintuitive. Does the Minister agree that shipping expensive—in environmental terms—LNG from the Middle East, rather than using gas that comes from our doorstep, is not sensible or good for the planet? Will he tell your Lordships’ House how the Government will turn that around and make better use of the resources we already have and are already producing?

[Lord Callanan (Con)]

First, I agree with the noble Lord that it is much more sensible to use our own domestic resources, rather than LNG. However, the reality is that, throughout this period, the UK remains a net importer of oil and gas. Therefore, it makes no sense to pursue the operations he is proposing. We do not produce enough of our own domestic energy. We are expanding our renewable capacity massively and have the largest developments of offshore wind in the world. We need to go further and faster, but it makes no sense to isolate ourselves from the rest of the world and cut off imports and exports.

[Lord Howell of Guildford (Con)]

My Lords, in running down North Sea oil and gas for climate purposes, is it not vital to ensure that supply does not shrink so fast that it falls behind continued demand, with the resulting price explosions in all the fossil fuels that we see now, which are causing such misery and crisis?

[Lord Callanan (Con)]

I totally agree with my noble friend. I know he speaks with great authority on this matter as a former Energy Minister. As I just said in response to the noble Lord, Lord Fox, we remain a net importer. Production from the North Sea is sadly declining. We need to make sure that we ramp up our renewable capacity as quickly as possible, but it remains a fact that we will still have demand for oil and gas during the transition. If we have that demand, it makes sense to produce this domestically rather than importing it from other, unstable, parts of the world.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, can the Minister confirm whether decisions on these matters are within the total competence of the United Kingdom Government? Is there any way that the Scottish Government could thwart them?

[Lord Callanan (Con)]

No, these decisions remain a matter for the UK Government. The noble Lord makes a good point. It is sad to see the reaction of the Scottish Government in not being totally supportive of the tremendously successful North Sea oil and gas fields which, as well as employing thousands of people in good, well-paid jobs, also contribute large amounts to the UK taxpayer.

[Lord Brownlow of Shurlock Row (Con)]

My Lords, can my noble friend the Minister tell me whether the Government are reviewing their position on fracking?

[Lord Callanan (Con)]

No, we are not reviewing our position, is the short answer to my noble friend’s question. Let me explain this issue: there is currently a moratorium on fracking because of the tremendous seismological damage that it caused. We remain open to reviewing this if it can be demonstrated that fracking can go ahead in a safe and responsible manner, but nobody should run away with the idea that this could be a solution to our problems. The quantities produced would be relatively small and they would not impact on the current high prices and it would be many years, perhaps even decades, before significant quantities could come on stream, even if we overcame all of the environmental problems and gave the go-ahead tomorrow.

[Lord Watts (Lab)]

My Lords, a previous question was about why we are exporting something that we desperately need in the UK. People cannot understand why we are still exporting, when there is a shortage and we are having difficulties getting supplies in the UK. Can the Minister explain it?

[Lord Callanan (Con)]

Yes, I realise that it is counterintuitive but supplies are required in different parts of the country. We are importing and exporting. The corollary to the noble Lord’s question would be to say that we seal the borders, disconnect all our interconnection pipelines and import no further LNG—and we would not have enough supplies to satisfy our domestic demand in such circumstances. We import and we export, but the point remains that we are a net importer of both oil and gas supplies.

[Lord Naseby (Con)]

Bearing in mind that the four Governments previous to this one have ignored the role of nuclear—that appears to be the situation—can my noble friend assure this House that we will now see what useful role nuclear can play in giving us, in a sense, a defensive supply?

[Lord Callanan (Con)]

Indeed, my noble friend makes a very good point. The House will shortly have the opportunity to consider the Nuclear Financing Bill, which has its Second Reading on 21 February, I believe.

[Lord Walney (CB)]

The Government agree—do they not?—that the actions of President Putin show that the whole of the West needs to increase the priority it gives to energy security. New nuclear must be part of that, but it should cause us to rethink some of the finely calibrated decisions on fossil fuels here in the UK if it can mean extra security for our western partners.

[Lord Callanan (Con)]

The noble Lord makes an excellent point. Regarding energy, first, it takes many years to develop new sources—sometimes even tens of years—and, secondly, we need diversity of supply. Yes, we need continued oil and gas production during the transition period; yes, we need to encourage new renewables; and, yes, we need to encourage nuclear. We need a diverse mixture of supplies.

[Baroness Fox of Buckley (Non-Afl)]

My Lords, can I press the Minister? People have stressed the importance of reliable domestic energy sources. In response to the question on fracking, the Minister raised all sorts of problems of safety and so on. These are contentious but could it be possible for the Government to lift the moratorium or at least commit themselves to looking again at this important issue? Nobody suggests that shale gas will solve all the problems but in an energy crisis that is really serious, we want to look at nuclear, fracking and all reliable energy sources. Fossil fuels should not be demonised so that we move away from them, and safety fears should not be used to stop what would be sensible for the British economy.

[Lord Callanan (Con)]

The noble Baroness makes some good points. As I said in response to my noble friend earlier, we keep these matters under review. If it can be demonstrated that fracking can be carried out in a safe and reliable manner, then of course we need to consider it. But we have to be realistic about this: it is not going to be the answer to our short-term difficulties. In preparation for this, I was chatting to some specialist officials and they said it could easily be 10 years—even if we got rid of the moratorium tomorrow and overcame all the environmental problems that were caused—before any fracked gas came on stream.

[Baroness Wheatcroft (CB)]

My Lords, the oil companies, including BP and Shell, have been making record profits. Yet for their North Sea operations they have had a negative tax rate for several years. Given the current circumstances, might the Government re-examine the fiscal regime in the North Sea? Can the Minister tell the House?

[Lord Callanan (Con)]

Of course, I leave all tax decisions to the Chancellor. But, again, I think that the noble Baroness is wrong and looking at this too simplistically. First, most of the profits announced by the companies in recent days were made in worldwide operations; a very small percentage came from British domestic production. Secondly, it was only last year or the year before that they were making net losses; I do not remember the noble Baroness or others saying that we should give them taxpayer support. Thirdly, where do these profits go? First, they pay more corporation tax and, secondly, they go to UK pension funds, shareholders and people who need that income to help them though the crisis. There are no easy answers; the idea that there is some magical, mythical pot of money that we can just extract from to solve all of our problems is not true, I am afraid.