Great British Energy Bill

Lord Ashcombe Excerpts

Committee stage
Tuesday 3rd December 2024 Lords Chamber

[Baroness Bloomfield of Hinton Waldrist (Con)]

I draw attention to my interests as outlined in the register and thank my noble friend for introducing this amendment. His insights underline the importance of collaboration as we address the dual challenges of energy security and achieving net-zero carbon emissions.

The amendment would build on prior commitments and take the steps needed to ensure that nuclear energy plays a full role in our energy mix. The amendment is not a new initiative but an essential next step in fulfilling the Government’s stated commitments to nuclear energy. It would ensure that we moved from exploration and consideration to concrete action in facilitating, encouraging and participating in the production of nuclear energy. By accepting it, we can bridge the gap between aspiration, implementation and participating in the production of nuclear energy.

The Government have already acknowledged the importance of nuclear energy, but acknowledgement alone will not suffice. There must be a tangible, unequivocal commitment to its production. This includes setting clear targets for both large-scale nuclear reactors and, more importantly, small and advanced modular reactors. A stronger commitment sends a signal to investors, developers and the broader energy sector that the UK is serious about leading the world in advanced nuclear technology.

Public investment is critical to establishing a foundation for nuclear development, but, equally, we must incentivise private sector involvement. This requires the Government to offer meaningful incentives, loan guarantees, tax breaks or grants so that private investors see nuclear as a viable and profitable area to support. Such a strategy will not only unlock funding but drive innovation, reduce costs and bring nuclear projects online faster.

I must also highlight the critical role of Great British Nuclear, which my noble friend mentioned earlier. Established by the previous Government, GBN is uniquely positioned to co-ordinate and drive nuclear development across the country. The Government should not only recognise the value of GBN but ensure that it is fully resourced and empowered to develop on its mission. GBN can act as a central point for collaboration between public and private stakeholders, fostering innovation and scaling up nuclear energy production.

The importance of nuclear energy in securing the UK’s future cannot be overstated. It is vital for energy independence, affordability and achieving our climate goals. By accepting this amendment, the Government would take a decisive step towards fostering a robust nuclear sector, one that combined public investment, incentivised private participation, reduced barriers to progress and built on the foundation laid by Great British Nuclear.

I was delighted to hear earlier in the Committee the Minister mention a new siting policy. As he will know, this will be crucial in supporting the ambitions of data companies such as Microsoft to base operations in the UK. If we can deliver security of supply of energy, with that will come jobs, new technologies and the possibility of levelling up those areas of the country which so desperately need it.

[Lord Ashcombe (Con)]

My Lords, I will speak very quickly in support of my noble friend Lord Offord. Nuclear fuel is very much a positive, as it is a baseload generator, which to me is critical. That is what we are short of in this country. Unfortunately, wind, solar, whatever, are not always with us. The excess that is produced by wind and solar when they are actively working, which is fantastic, could then be used to drive hydrogen production—we have touched very briefly on that in this House this afternoon. Hydrogen is the clean fuel of the future, possibly the cleanest; but we need to be able to store and then burn it, in times of need, to generate the electricity that will reduce our dependence on gas generation, particularly, which I know we are all in favour of. I just wanted to add that to this small debate, knowing that nuclear reactors are also most useful for data centres.

--- Later in debate ---

Moved by

[Lord Ashcombe]

22: Clause 3, page 2, line 18, at end insert—
“(e) the exploration of oil and gas in the North Sea where the UK’s energy security is compromised.”Member’s explanatory statement
This would amend Great British Energy’s objects to include the exploration of oil and gas in the North Sea where the UK’s energy security is compromised.

[Lord Ashcombe (Con)]

My Lords, Amendment 22 in my name is about energy security. Energy security is a matter of utmost importance—a foundation on which our homes, businesses and industries depend. We must ensure that our nation can provide reliable power to keep the lights on and our economy running.

I was not in this country during the 1970s but lived in the Republic of Ireland. We suffered power cuts that caused significant disruption. I recall a farming friend who lost his entire pig herd due to a lack of ventilation—a stark reminder of the devastating consequences when power systems fail. We cannot afford to let such a situation arise here.

While I wholeheartedly support the goal of achieving net zero by 2050, we must temper ambition with pragmatism. The United Kingdom accounts for 1% of global carbon dioxide emissions, compared with 33% from China and 12.5% from the United States. While we strive for cleaner energy, we must be realistic about the scale of transformation required. Getting electricity production to net zero by 2030 is a noble aspiration, but it remains a significant challenge.

Progress has been made. According to the Department for Energy Security and Net Zero, the UK’s carbon dioxide emissions decreased by almost 50% between 1990 and 2023, including a 6.6% drop in the year ending 2023. Electricity generation contributes 11% of our greenhouse emissions. Efforts to reduce this share are ongoing. However, our energy mix relies on a delicate balance. Nuclear power—which we have just discussed—and biomass provide baseload capacity most of the time, while solar and wind offer renewable contributions that are inherently variable. Interconnectors, though helpful, depend on surplus supply from neighbouring countries.

The swing producer in our energy system remains gas, which under certain circumstances—when the wind is not blowing and the sun is not shining—supplies upwards of 60% of our energy needs. As the Government push for greater electrification, whether in transport, heating or industry, the strain on our grid will only increase. Targets for offshore and floating wind are ambitious, as are those for solar power, which raises concerns about land use and its impact on food production—an amendment for later discussion, I am sure.

Onshore wind also faces resistance, and these challenges make clear that gas generation will remain a critical component of our energy mix for years to come. Let us not forget that electricity accounts for only 20% to 25% of the energy consumed in this country, and that 87% of UK homes rely on gas for heating and hot water, yet domestic gas production declined by 10% between 2022 and 2023 and nearly 14% to August this year, according to Offshore Energies UK.

This leaves us increasingly reliant on imports, as our current production is about 40% of requirements. Imported gas comes via pipelines from Europe or as LNG shipments. Global instability, such as sanctions on Russia, has tightened supply, while demand in Europe has risen. Norway, a trusted ally, provides the majority of gas imported by pipeline, some 35%, placing many of our eggs in one basket. The additional 25% required comes as LNG, sourced from countries such as the United States and Qatar, both of which have indicated that their supplies will increase. This has a significantly higher carbon footprint—on average four times more than our domestic production—due to transport and production methods.

The North Sea Transition Authority’s 2024 Emissions Monitoring Report indicates that UK gas production is a top-quartile performer according to kilograms of carbon dioxide equivalent per barrel of oil equivalent—kgCO₂e/boe. The NSTA report also shows a good methane emissions performance—arguably a greater concern than carbon dioxide emissions—with the UK having an intensity of 1 kgCO₂e/boe versus the global average of 16 kgCO₂e/boe. I apologise for all the figures.

New UK developments are being delivered far more cleanly than the average of current existing UK developments. New UK developments are significantly cleaner than imports, producing emissions roughly 10 times cleaner than LNG imports. We are fortunate to have an abundance of hydrocarbons in our offshore waters. Despite the decline, there is still potential for two or three decades of production, as I mentioned at Second Reading. Exploiting this resource responsibly would protect some 200,000 direct and indirect jobs, sustain some critical industries and provide a bridge to the renewable future. Moreover, recommencing the issuance of oil and gas licences would help reduce global emissions by avoiding the higher carbon intensity of imports, stabilise our energy and bolster our economy.

However, I must caution that the current tax regime risks an 80% slump in investment in the UK oil and gas industry over the next five years, according to OEUK. This would undermine both energy security and our ability to transition effectively. Lifting the ban on new exploration and production licences, while ensuring robust environmental standards, offers a pragmatic path forward. It will protect jobs, reduce emissions and, most importantly, help secure the energy future of the United Kingdom. I very much look forward to the Minister’s response and beg to move.

[Lord Offord of Garvel (Con)]

My Lords, I thank my noble friend Lord Ashcombe, whose amendment I support, for his insightful contributions on the important issue of energy security. This issue cannot go unaddressed when discussing the Bill because of the consequences to our country’s energy production, supply and security. Indeed, Clause 3 explicitly states that GBE’s objects

“are restricted to facilitating, encouraging and participating in … measures for ensuring the security of the supply of energy”.

However, the Bill makes no provision to ensure the security and future of our energy supply, and I express my deepest concern that the tunnel-vision focus on renewable energy to achieve the Government’s overly ambitious target of clean energy by 2030 will inevitably compromise our energy security.

The UK’s energy security should indeed be at the forefront of the debate on the Bill. The Government have said that Great British Energy is part of their plans to ramp up renewables, which they say will result in cheaper energy and greater energy security. However, this is simply not true. Instead, the Government’s renewable plans will cost the British people and our national energy security.

We on these Benches of course recognise the need to cut household energy bills for families, to accelerate private investment in energy infrastructure, and to protect and create jobs in the energy industry across the UK, but the Bill gives no indication as to how this will be achieved. It does not include any measures to ensure the effective delivery of a reduction in household energy bills, nor an increase in British jobs, nor the long-term security of our energy supply. We understand that the purpose of Great British Energy will be to assist the Government in ramping up renewables to achieve their self-imposed target of 100% clean energy by 2030. This is a target that I believe to be driven by political ideology and which industry experts have described as aggressive, unrealistic and expensive, requiring far more than the allocated £8.3 billion of funding.

It is an undeniable truth that renewable energy will always be naturally unreliable. As my noble friend Lady Bloomfield brought to our attention at Second Reading, over the last couple of months, as was the case this time last year and in March, we have seen another dunkelflaute. Indeed, in March, the measure of how often turbines generate their maximum power failed to reach 20%, and we have recently seen levels drop to nearly zero. Relying on new interconnectors to Belgium and Holland will not offer energy security if their wind farms suffer the same weather conditions as ours or if their countries’ needs are greater than ours.

All this being said, it is therefore vital that we acknowledge the UK’s North Sea oil and gas industry when we discuss the future of our energy production and security. This industry has suffered under the Government, as they increase their taxes on North Sea oil to punitive levels. Energy firms have described increasing the windfall tax by 3%—with the headline rate of tax now a staggering 78%—and extending this to 2030 as a devastating blow. This hike will cut investment in UK natural resources and oil and gas production, as indicated by my noble friend Lord Ashcombe, which will make the UK increasingly dependent on imported supply. This will compromise our energy security, but consumers will also be exposed to price fluctuations. The country will become increasingly dependent on imported electricity and will therefore be forced to pay the market price for power as fossil fuel powered generators are closed at a quicker pace than we are ramping up the necessary capacity to replace them.

Not only this, but if investment in UK oil and gas decreases then the revenue generated from the energy profit levy, which the Government are relying on to help fund GBE, will decrease. By pressing ahead with ending oil and gas licences—a move no other major economy has taken—£12 billion in tax receipts have been lost from the North Sea. This, combined with the £8 billion which will be spent on GBE, is a staggering £20 billion of taxpayers’ money.

Analysts have spoken out and warned about relying on North Sea oil taxes to fund the Government’s green energy plans while the Government tax the operators to the point that revenues fall by 80%, as indicated by my noble friend Lord Ashcombe. We must address the fact that the revenue generated from the energy profit levy, or windfall tax, may fall if investment in UK oil and gas decreases. Alongside private sector investment, the Government are relying on windfall tax revenues to fund GBE and support the transition to clean power by 2030. Furthermore, the £8 billion allocated to GBE does not compensate for the amount of investment in energy projects that will be doomed by the Government’s plans to prematurely shut down the UK oil and gas sector.

The North Sea oil and gas industry is not only critical to the UK energy supply but a bedrock for many economies and communities. Economic ecosystems have developed around this industry. It is therefore critical that we manage the energy transition properly. The Government’s plan for GBE, combined with the energy profits levy, puts the industry at risk at this vital time. The proposed increases and the removal of the investment allowances could be detrimental to investment. Offshore Energies UK has warned that the tax increase could see investment in the UK cut from £14 billion to £2 billion between now and 2029. That is not scaremongering; it is what the industry is telling us.

--- Later in debate ---

[Lord Hunt of Kings Heath (Lab)]

My Lords, one of the joys of debating energy is that, on every occasion, we come back to the substance of the whole argument about energy and where we are going. I am grateful to the noble Lord, Lord Ashcombe, for stimulating such an interesting discussion. The noble Lord, Lord Hamilton, in a sense, has brought this into the open. Clearly, it was his Government who signed up to the legislation on net zero by 2050. The last Government, as much as we do, saw the huge risks involved in climate change and the need to take action.

The international position is that, despite what the noble Lord says, the fastest growth in use of renewable energy is occurring in China. The International Energy Agency indicated in its recent renewable energy report that we will see a 2.7 times increase in the use of renewables globally between now and 2030. So, there is a global movement towards clean power and net zero. Yes, it is going at different paces, but we believe the UK can gain great advantage by taking a leadership role. The National Energy System Operator—NESO—has shown that there is a pathway to clean power by 2030. We are now committed to taking that and turning it into an action plan, which I hope we will be able to publish very shortly.

I would not deny that North Sea oil and gas still have important roles to play, and I am of course listening to what noble Lords say about the tax situation and proposals, and the investment issue. Clearly, the Government are in very close discussions with the industry. Our aim is an orderly transition, and that is what we mean to achieve. So we clearly see the value of what happens in the North Sea, and we need it to continue to provide supplies to the UK in the years ahead. Equally, however, we need to manage the transition to clean power and net zero.

On the issue of jobs, obviously, the number of people employed by GBE will not balance out the people who may be lost to the oil and gas industry in the future. This is important. It does not really matter where the chair comes from; the point is that the headquarters of GBE will be firmly based in Aberdeen. I have already referred to the extra 40,000 people we need in nuclear by 2030. If you look at the other sectors we are talking about investing in—CCUS, hydrogen—all of them will need more people. So, the energy sector as a whole will provide a huge number of opportunities, but I accept that, if there is a reduction in the number of people employed in the North Sea, it is our responsibility, with industry, to help manage that transition effectively.

In the end, we may disagree about this, but the Government are confident that we are right to go towards clean power as quickly as possible. We have had endorsement, both from the Committee on Climate Change and the Office for Budget Responsibility, that investing in clean energy now will pay dividends in the long term.

[Lord Ashcombe (Con)]

I am grateful to the Minister and, indeed, to my noble friends. I continue to worry that, as we import LNG, our effective emissions, by passing the problem elsewhere, are significantly higher than they would be using our own production. That is an important fact in this debate. We may have to come back to this issue on Report, but for now, I beg leave to withdraw my amendment.

Amendment 22 withdrawn.

Great British Energy Bill

Lord Ashcombe Excerpts

2nd reading
Monday 18th November 2024 Lords Chamber

[Lord Ashcombe (Con)]

My Lords, I declare my interests as an insurance broker for the energy industry, as set out in the register.

The Bill before us, dealing with the creation of Great British Energy, has the laudable aim of decarbonising the power sector by 2030. That is an ambitious target, especially given the broader commitment for the United Kingdom to reach net zero by 2050. Achieving such a transformative goal requires careful handling, not only in its practical implementation but in securing the support and understanding of the population. 

Energy is foundational to growth for any nation, and growth is something we undoubtedly need. As outlined in the founding statement of GBE, published by DESNZ on 25 July, the company’s mission is to

“drive clean energy deployment, boost energy independence, create jobs and ensure UK taxpayers, billpayers, and communities reap the benefits of clean, secure, home-grown energy”.

However, such aspirational language does not appear within the Bill itself, nor are there clear metrics by which Parliament might assess its ongoing success. Other noble Lords, including the noble Lord, Lord Vaux, have addressed these omissions in great depth. I am not going to repeat their arguments here other than to say that I agree.

Instead I shall turn to Clause 3 and the stated objectives of GBE. Electricity generation accounts for approximately 20% of the UK’s overall energy demand. Our current energy mix highlights the challenges ahead: 31% from wind; 28% from gas; 15% from nuclear as a constant baseload; 8% from biomass, largely from Drax, whose environmental credentials merit scrutiny; and 5% from solar, with the balance met by interconnectors with Europe. The other 80% of UK energy is hydrocarbon-based.

The Bill envisages that most of the new clean power will come from offshore wind, onshore wind and solar. However, the scale of expansion is extremely challenging. According to the National Energy System Operator’s report Clean Power 2030, offshore wind capacity must triple and solar capacity must more than triple, while onshore wind needs to double. These are staggering targets that far exceed our historical rate of progress.

As has been noted many times in your Lordships’ House, the wind does not always blow, and the sun does not always shine. Gas, as the swing fuel, is consequently frequently called on, sometimes accounting for 60% or more of generation—it has been 55% this afternoon—during lean or cold periods. Conversely, during periods of overproduction, typically when the wind blows too hard, surplus power must be shed, meaning that the producers are paid a curtailment fee to not generate. The situation will be exacerbated as more renewable power comes online. Hydrogen production, which has been discussed by various noble Lords and which I will address shortly, has the potential to address that issue.

While the construction of fixed wind and solar farms is well understood, it is unlikely that GBE will play a significant role in that technological development. It will need to deploy resources in the floating offshore wind arena, which is still in its infancy but has a significant upside. In addition, GBE might contribute to solving the associated planning, environmental and conservation challenges by encouraging the integration of clean energy production in all new infrastructure.

Equally daunting are the upgrades to our grid infrastructure. An estimated £40 billion will need to be invested annually until 2030 to enable the increased generation targets. I am afraid that collectively that dwarfs the £8 billion available to GBE. I am all for ambition, but one must ask: are these goals realistic and achievable?

Importantly, how does that correlate with the much-touted £300 saving per household that was so widely discussed before the election? It seems increasingly elusive.

It is certain that gas will remain a key component of our energy mix for years to come. The UK currently consumes nearly 1 billion barrels of oil equivalent annually for its energy. We are fortunate to have significant hydrocarbon reserves within our territorial waters. At the end of 2023, the North Sea Transition Authority estimated 3.3 billion barrels of oil equivalent in reserves, which are likely to be produced; 6.1 billion BOE in contingent resources, representing known but undeveloped assets awaiting regulatory or investment approval; and 3.5 billion BOE in mean exploration prospects—that is, potential resources yet to be discovered. These reserves, weighted 70% towards oil and 30% towards gas, could meet over half the UK’s expected energy demand over the next two to three decades. However, production is falling at more than 10% annually, outpacing reductions in consumption and exposing us to increased reliance on imports.

The 200,000 jobs connected to the hydrocarbon industry, both directly and within the supply chain, which will decline rapidly as the industry is shut in, are hugely significant. While some of these skilled workers may transition into the renewable power industry, we must ask ourselves: will it be all of them?

Beyond employment, the economic contribution of oil and gas remains substantial. According to the Office for Budget Responsibility, revenues from offshore corporation tax, petroleum tax and the energy profits levy raised £5 billion in 2023-24. Although those revenues will decline over time, they remain significant. Furthermore, the Office for National Statistics reported that the extraction of crude petroleum and natural gas contributed £27.6 billion to the UK economy in 2023, accounting for 1.2% of the total economic output of £2,369 billion. These figures remind us of the industry’s enduring impact and the need for a carefully managed transition.

Recent gas discoveries, such as the Selene and Baker fields, underscore the remaining potential of the North Sea, yet these projects depend on competitive regulatory and fiscal conditions, which are not guaranteed. Projects already licensed, such as Jackdaw and Rosebank, which are essential to our energy security, are before the courts, resulting in further delays and potential cancellation, which could put further strain on our domestic production.

It cannot be right that we are importing increasing volumes of LNG to satisfy our gas needs when we have abundant resources of our own. Imported LNG is often produced under less stringent environmental controls and must be transported across oceans, increasing our carbon footprint threefold. Furthermore, are we not merely transferring the problems to others rather than addressing them ourselves? This does not reduce emissions, which is the ultimate goal, and it undermines our commitment to true environmental responsibility. That clearly highlights the need for the ongoing issuance of licences in our territorial waters. I strongly urge the Government to reconsider their current position and take action to support this vital initiative.

Other noble Lords have discussed nuclear generation. It is certain that the country needs a smorgasbord of generation types, and nuclear must be an important part.

I see two further areas in which GBE may make a positive impact. First, renewable generation is inherently intermittent and, while battery storage can address short-term issues, it cannot manage significant downtimes. Excess renewable electricity could be used to produce green hydrogen by electrolysis with no greenhouse gas emissions, which in turn could fuel hydrogen turbines during low renewable production periods. Developing the necessary storage and turbine infrastructure should be a priority for GBE, preventing curtailment payments and generating electricity with the cleanest of fuels.

Secondly, the development of carbon capture, utilisation and storage is crucial to the UK and to other countries. Due to geology, the UK has significant CCUS potential, amounting to the equivalent of approximately 200 years of current carbon emissions. Its development will be crucial to UK decarbonisation and that of other countries. It is of course not a single solution to emissions reduction but could provide a crucial route for some sectors, such as large industrial users and gas-fired power generation. GBE should play a leading role in advancing this technology.

While I commend the ambition of the Bill, I fear it may overreach in its expectations of the industry’s capacity to deliver. Simultaneously, it underestimates the continued importance of hydrocarbon resource in ensuring our energy security. Without sufficient oversight or clear metrics, GBE risks becoming an unchecked entity with uncertain outcomes. Nevertheless, we must remain steadfast in our commitment to net zero by 2050. If managed prudently, we may even reach that target sooner, without jeopardising the growth and prosperity of our nation.

King’s Speech

Lord Ashcombe Excerpts

Thursday 18th July 2024 Lords Chamber

[Lord Ashcombe (Con)]

My Lords, it is a pleasure to welcome the noble Baroness and the noble Lord to the Front Bench. Like many others, I wish them well. I too shall speak to the energy industry and its mix in this country, in particular oil and gas. I declare my interest as an insurance broker for Marsh Ltd, in the energy practice.

Without energy in the economy, the country would grind to an abrupt halt. Today, the United Kingdom derives approximately 20% of its energy from electricity and 75% from hydrocarbons, with the expectation that this number will reduce to 25% when we meet the 2050 target for net zero, which I believe everyone wants to achieve.

Currently, wind, solar and nuclear power do not produce enough energy for 100% totally renewable electricity generation. The split of electricity generation last year was as follows: wind 32%; solar a modest 5%; hydrocarbons 30%, of which almost all was gas; nuclear 14.5%, the very best baseload we have; and other sources, including interconnector cables with Europe, some 21%. The mix will remain important for security purposes.

I ask noble Lords to please remember that the sun does not always shine and the wind does not always blow—sometimes at the same time—which leaves a large shortage that currently can be made up only through predominantly gas generation. This shows that the United Kingdom’s energy security remains important. The more we can produce domestically the better, and we should not be reliant on more imports than are necessary.

Energy is greater than just electricity generation. On the world scale, UK emissions are about 1%. Oil and gas emissions in this country are currently about 3% of that number and have been reduced by 24% since 2018. We are on track for targets of 50% by 2030 and 100% by 2050 for that which we produce. This is by no means perfect: the UK is still in the top 20 countries for emissions.

We use the majority of our domestic gas to generate electricity and heat homes, but we still need to import about 50% of our requirements. This comes by pipeline from Europe, predominantly Norway, and is then topped up by importing LNG as needed. LNG is emissions-heavy in comparison to domestic production, due to the manufacturing process and the need for it to be transported significant distances. We already import the majority of the crude oil refined here. The refineries are not compatible with North Sea oil, which we export predominantly to Europe, then reimporting the refined product primarily for transport. The emissions caused by more importation than necessary would be more detrimental to the atmosphere and should be avoided.

The oil and gas industry employs some 200,000 people directly or indirectly, according to OEUK, and produces substantial revenue for this country. The temptation to significantly reduce any future activity in our oil hydrocarbon basins would have a harmful effect on these employees and would quite possibly lead to an exodus of highly qualified individuals, who would look to use their skills overseas. This was the experience in New Zealand when the issuing of new licences slowed significantly. It is now in the process of trying to reverse this trend and potentially issue more licences.

We need to provide an environment where we can use the skills in this country as we manage the provision of energy in the future: offshore wind, hydrogen and carbon sequestration, as the noble Baroness, Lady Liddell of Coatdyke, so beautifully described. The increase in offshore wind power—of which I am an advocate, as we have one of the best resources in the world in this respect—is the best use of these transferable skills across industries. However, onshore wind and solar farms will use significant amounts of land, which has to be taken out of agricultural production. The areas required are frightening, and the Minister specifically addressed the protection of the environment.

Nothing is ever simple, and the increase in power generation has a drawback: the grid is straining to provide sufficient capacity to move the electricity required from production sites to areas of use. Many of the oil and gas producers are also investors in the renewables sector. However, they need stability in their cost base in order to continue to produce oil and gas to fund the renewable growth, all to the long-term benefit of this country. The projects that generate the returns for taxpayers carry significant costs, and changes in any cost structure, including investment allowances, can play havoc with their continuation and may make projects unviable. There is still a significant amount of oil and gas to be found and developed in our waters, so let us continue to be an oil-producing and gas-producing nation well into the future while keeping, importantly, to our net-zero commitments.

Greater taxation of domestic oil and gas, or any reduction in the granting of licences, will make it less likely that this production will continue, resulting in a drop in revenues to the Exchequer and in a potential exodus of talents and skills. This will reduce our energy security. Given that, during the transition to net zero and afterwards, the United Kingdom will continue to need hydrocarbons, a further consequence would effectively be outsourcing our environmental responsibilities and commitments to countries that may well have lower levels of green regulation than us, ironically resulting in a net increase in global emissions.

Offshore Petroleum Licensing Bill

Lord Ashcombe Excerpts

2nd reading
Tuesday 26th March 2024 Lords Chamber

[Lord Ashcombe (Con)]

My Lords, it is a pleasure to be able to follow the noble Baroness. I declare my interest as an insurance broker for the energy sector, but I work with companies from America rather than the UK.

I believe that the Bill brings only benefits to the United Kingdom in energy security, assisting the climate goals to which we are committed and, importantly, supporting the economy in many parts of the country. As a country, we are fortunate to have several oil and gas basins within our territorial waters. Since their discovery and development in the late 1960s and early 1970s, they have enabled us to reduce our dependence on imports. At their peak in 1999, they produced some 4.5 million barrels of oil equivalent a day. It is projected that this year, that will reduce to 1.1 million barrels of oil a day. Since demand is currently somewhere around 2.7 million barrels of oil equivalent a day, the country is a net importer of both oil and gas.

The UK’s dependence on hydrocarbon fuels for our energy needs is about 75%, as we have heard. It is predicted to be still 25% when we reach net zero. Sadly, the reserves are becoming depleted; the decline is predicted to be 7% per annum going forward and we will be ever more reliant on imports. The UK’s oil and gas industry is regarded as a leader on the world stage, employing, as we have heard, a highly valued, skilled and diverse workforce of a debated 200,000 directly for and associated with the offshore industry. Many of these jobs will, over time, move into the energy industry of the future: more offshore wind, hydrogen production and carbon sequestration. It is essential that we keep these skills alive, as they will be required in the transition of the UK to net zero by 2050.

Earlier this afternoon, we were using about 15% from wind, 8% from solar, 17% from the interconnectors and a further 12% from our ageing nuclear fleet to generate electricity. Even with the significant and welcome increased projection in these areas, there will be a shortfall. The sun goes down every night and the wind does not always blow; it is gas that makes up the difference—37% this afternoon. We produce only about 47% of the total current gas demand in the country, remembering particularly home heat in addition to its use in generating electricity. The shortfall must come from somewhere until renewable resources provide sufficient energy, which I wholeheartedly support.

The position with oil is slightly different as, again, there is a significant shortfall, as described by the noble Lord, Lord Lilley. The options we can take to ensure the energy security of the country are limited, particularly when considering our net-zero commitments. We can either start to rely more heavily on imports of oil and gas, which is more carbon intensive, or be able to exploit our domestic reserves, which is less so.

The Bill has two logical climate targets to meet: the carbon intensity test and the net importer test. In respect of gas, the average carbon intensity of domestic gas produced during the assessment period was lower than the average carbon intensity of liquefied natural gas imported into the United Kingdom during that period.

Gas is imported in two ways. The first is natural gas via the pipeline system from Norway, which is the majority. Norway certainly produces the cleanest gas—it is cleaner than our production—but its reserves are not infinite. While the Ukraine conflict sadly continues, with sanctions preventing Russian gas entering the European system, gas from the Norwegian fields is highly desirable and in demand across northern Europe. However, there is to be a significant decline in Norway’s gas production before the end of the decade.

The second alternative is importing LNG, which we also do. Wherever it comes from, it imposes a significant increase to our carbon footprint, of three to four times that of our domestic production, notwithstanding the challenges of getting it here. Let us not forget that in the United States, from where we import most of our LNG, the Biden Administration has imposed a ban on the development of more LNG liquefaction plants designed for export. We bring LNG also from the Middle East via the Red Sea, which has its own issues. We bring it too from Peru via the Panama Canal, which has water restrictions. On this basis, the country needs to limit LNG imports as much as possible.

The net importer test is important for gas, and it is the key test for the continued production of domestic oil. As I said, we are a net importer of oil. At this time, the North Sea Transition Authority—the licensing authority—has no requirement to offer blocks or parts thereof with any frequency, other than when it deems licences are required. There was a four-year gap between the two most recent licensing rounds. This Bill ensures that licences will be offered annually, allowing industry participants to plan with more predictability. It is they who have the expertise and capacity to fund a significant number of wind, solar, hydrogen, and carbon sequestration projects driven by their oil and gas revenues. That will continue to ensure that the energy industry benefits the economy and provides significant tax revenues. Most importantly, it will help secure the jobs currently in the industry and transfer them to the renewable industry as demand requires. This is against a backdrop of added energy security for the country while keeping to our climate commitments and goals by using the two embedded tests in the Bill. I am pleased to support this Bill.