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.