Offshore Petroleum Licensing Bill

Baroness Blake of Leeds Excerpts

Committee stage
Tuesday 23rd April 2024 Grand Committee

[Baroness Blake of Leeds (Lab)]

I start by reflecting on the comprehensive discussion we have had. All noble Lords in the Room are looking forward to the Minister’s comments on the points raised.

Just to reflect on the Second Reading in the Chamber, many of us asked then about the purpose of the Bill, whether this legislation is really necessary and if it will satisfy its stated objectives to boost the economy, deliver energy security and transition to net zero. I do not need to go through those points again; we made them very clearly at Second Reading and could well return to them.

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[Baroness Blake of Leeds (Lab)]

I was just going to strike a more positive note by saying that, although I question why this legislation is before us and how necessary it is, I welcome within the amendments, particularly in this group, an opportunity to seek improvements on a wider particular area, and we have had some good justification today as to why that is.

I am pleased to have been able to sign the first amendment, in the name of the noble Baroness, Lady Hayman, which is also signed by the noble Lord, Lord Randall, and the noble Earl, Lord Russell. I just emphasise that this amendment is looking to prevent the invitation of new seaward area production application licences until the Secretary of State has introduced a ban on the flaring and venting of methane by new offshore installations, and it would further require the Secretary of State to prevent further rounds if a wider ban is not put in place within two years.

We have heard very clearly today that there is a general feeling that the damage caused by methane has been overlooked, and this presents an opportunity to address that, to acknowledge its potency as a greenhouse gas and to bring it up to speed, with the focus that there has been on carbon dioxide. In addition, as the noble Baroness, Lady Hayman, said, the statistics are quite staggering in terms of the sheer waste every year in the burning off of wasted gas. Just think of the powering of the number of homes times the number of years: we are talking into the hundreds of thousands and, really, we should be doing better.

As we know, NSTA guidance states that there should be zero routine flaring and venting from any new developments—that is very clear. That seems to give a sense of security to some noble Lords in the debate. There was also an acknowledgement that routine flaring and venting should be phased out by 2030. However, I emphasise that, although those words are there, the problem remains that enforcement is patchy and measures are found only in non-binding guidance. I believe that this amendment seeks to manage this situation and help us move forward.

The one point on which I would like to press the Minister picks up on the conversations and discussions that we had at Second Reading concerning the amendment put down by the Member of Parliament Alok Sharma and the suggestion from the Minister in the other place that there would be another look at this. I would just like an update on whether those discussions have progressed and, if they have not so far, would the Minister be prepared to meet with us to talk about how we could come to some agreement or consensus—a way of moving forward that would satisfy the serious concerns that have been expressed in different debates?

Referencing Amendment 2, in the name of the noble Baroness, Lady Hayman, also signed by my noble friend Lord Knight, I do not honestly think that we emphasise enough in our discussions around this agenda just what an opportunity is presented. This was the basis of the discussions of the chief executive of the CCC over the weekend. We should be talking about the growth potential and opportunities that should be created, not only in jobs, as we have heard about today, but in attracting investment into this whole area.

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[Baroness Blake of Leeds (Lab)]

I acknowledge the comments from the noble Baroness, Lady Jones, and the noble Earl, Lord Russell. To repeat the concerns as outlined at Second Reading, our belief is that the tests identified in the Bill will be impossible to fail and are thereby fundamentally flawed, as my noble friend Lord Lennie has previously outlined.

Amendments 12 and 15 in my name are straight- forward. The intention is to be as simple as possible, leaving out “liquified” from the Bill to include all natural gas imported into the UK. We need to achieve clarity, which is not present in the current wording. If the Government want to keep it in, they should be open about the consequences. Liquified natural gas will always be more greenhouse gas intensive in production than UK natural gas. The North Sea field will not meet our total demand for oil and gas, as we know. We need to replace these tests with ones that produce a proper judgment about whether a licence should be issued. The main consideration should be whether issuing a licence is in line with our climate change goals.

Another disappointment with this Bill, as we have discussed, is that there is no reference to previously introduced climate change compatibility tests into production generally—quite an omission. Including only LNG presents a serious problem. We acknowledge that substantial amounts of natural gas come into the UK from Norway via the pipeline. The production of that gas is substantially cleaner than that of UK natural gas. Indeed, we need to be sure that managing the decline in demand for gas is at the heart of a successful net-zero transition. The best and fairer test would be to consider gas imports in the round.

We are trying to amend a Bill that is deeply flawed, as I have previously recognised. I recognise the opposition of the noble Baroness, Lady Jones, to the Bill as a whole. I believe that this a simple way in which we could make some improvements; I look forward to the Minister’s comments with interest.

[Lord Callanan (Con)]

The noble Baroness, Lady Jones, tabled notice of her intention to oppose Clause 1 standing part of the Bill so let me begin my remarks by briefly outlining the purpose of that clause. Under the Petroleum Act 1998, offshore oil and gas licences are administered by the Oil and Gas Authority, which is operating as the North Sea Transition Authority. A seaward production licence grants exclusive rights to the licensee to explore, bore for and produce oil and gas from the geological formations that lie beneath the UK’s offshore waters, within an area defined by the licence. Additional permissions are required before any activity can take place.

Periodically, the NSTA launches licensing rounds inviting companies to apply for such licences. During this process, interested companies submit bids and licences are awarded to bids that promise to ensure the economic recovery of the UK’s oil and gas resources, while of course supporting the drive to net zero by 2050. This existing arrangement means that industry does not have certainty as to when—or, indeed, if—the NSTA will launch a new licensing round. This clause provides that certainty by amending the Petroleum Act 1998 to place a duty on the NSTA to invite applications for seaward production licences in each annual period, which runs from October to September each year. This is subject to two tests being passed: that the average carbon intensity of domestic UK gas is lower than the average carbon intensity of imported liquified natural gas; and that the UK remains a net importer of both oil and gas.

Together, these tests, which will be conducted by the NSTA, will ensure that the annual duty on the NSTA applies only where this supports our wider energy security and energy transition objectives. If the annual duty is triggered, the NSTA proceeds with the current licensing process. It will remain a matter for the NSTA as an independent regulator to decide how many and which blocks or part-blocks to offer for applications—with a minimum of one block—and to ensure and apply the appropriate criteria for determining those applications. It will remain the responsibility of the NSTA to decide whether to offer and grant any licences at the conclusion of that process and whom to offer them to; the NSTA will retain the discretion to grant licences outside of this new annual process in the usual way where needed.

I assure noble Lords that the offering and granting of licences under the new annual process will remain subject to the existing rigorous environmental regulatory requirements. These include the obligation written into the NSTA’s strategy to assist the Secretary of State in meeting the target of net zero by 2050. Indeed, I want to be clear that nothing in this clause contradicts our steadfast and, of course, legally binding commitment to achieving net zero by 2050. We do not need to choose between either delivering net zero or supporting our domestic oil and gas sector; the two things are not mutually incompatible.

Amendments 11, 13, 14 and 16 in the name of the noble Baroness, Lady Jones, and Amendments 12 and 15 in the name of the noble Baroness, Lady Blake, seek to amend the carbon intensity test. This test looks at historical carbon dioxide emissions from the production and supply of natural gas during an assessment period spanning the preceding three years. The test is passed if, during that timeframe, per unit of energy, the carbon emissions of producing gas domestically were lower than the average carbon emissions from the production and delivery of liquefied natural gas from all geographic locations.

The amendment put forward by the noble Baroness, Lady Jones, seeks to change the test to include in the comparison all imported and produced petroleum products, including crude oil, and all forms of natural gas. The amendments put forward by the noble Baroness, Lady Blake, seek to include an assessment of the carbon intensity of all imported natural gas.

It is important to recognise that the markets for oil and gas work very differently; it is not possible to make the same comparisons for oil as it is for gas. In the case of gas, we have a choice either to maximise domestic production or to import more. The more gas we produce domestically, the less we need to import; that seems obvious to me. For oil, we do not have that same choice because oil has to be refined before it is used. For historical reasons, UK oil is generally processed abroad—predominantly in Europe, where our production supports the energy security of our European allies. So a comparison of the carbon intensity of imported oil versus domestically produced oil would be the wrong one to make.

Turning to the test for gas, LNG has been chosen as the relevant comparator as it is a critical marginal source of energy, providing an essential buffer source—especially in winter, when gas demand is higher. Over the past decade, LNG has become an increasingly important method of moving natural gas to market. This will only intensify in the coming years because UK natural gas production peaked in 2000 and the UK has been a net importer since 2004 in order to meet domestic demand.

It is fortunate that some of the UK’s gas imports, in particular pipeline imports from Norway, have relatively low production emissions. However, it is a fact that Norwegian production, like our own, is declining. We will still need gas in the coming years as we transition to net zero. With both UK and Norwegian production declining, it is likely that LNG will play an increasingly important role. During periods of high demand in winter, LNG is a key, flexible source of supply; this role will only increase over time as UK and Norwegian production declines. Producing less domestically means importing more carbon-intensive LNG, which is why a comparison with LNG is the right one to make, in our view, and why we have included it in the Bill.

With the explanation I have been able to provide, I hope that it is clear why the test focuses on LNG and not comparators with oil, which is completely different, or other forms of gas. I therefore ask the noble Baroness to withdraw her amendment.