Oil and Gas: Subsidies and Licensing

Baroness Boycott Excerpts

Thursday 20th January 2022 Grand Committee

[Baroness Boycott (CB)]

Sorry, I thought you were just interrupting the noble Lord, Lord Lilley, to make a point. I, also, welcome the new Minister and look forward to his maiden speech. I much enjoyed the exchange just now. It is worth pointing out that the largest single group at the climate talks was the 503 oil executives, spending the most amount of money to show off their wares.

I shall lay out a few facts. We are, undoubtedly, one of the most profitable countries in the world for oil and gas companies, as the noble Baroness, Lady Sheehan, pointed out. Since the Paris agreement, the UK has granted tax relief of £10 billion. I know that the noble Lord, Lord Lilley, would say that that is just par for the course, but we are trying to aim for a zero-carbon world.

During an exchange last week, the noble Lord, Lord Callanan, posed the question about where we get our oil and gas from, and he asked

“do we use oil and gas products we generate … or do we get them from Russia or Saudi Arabia?”.—[Official Report, 11/1/2022; col. 964.]

The facts are that, in 2020, 54% of the demand for natural gas was met by domestic production, 32% from pipeline flows from Norway and the remainder met mainly by LNG cargoes from Qatar at 12%, the US at 7% and Russia only 3%.

On the climate compatibility checkpoint, according to E3G, the UK continental shelf is a mature, high-cost basin with declining reserves. The basin is oil weighted, with gas making up only 30% of remaining reserves. Even if those reserves could be brought online at speed, the UK would still be exposed to international gas markets and their inherent price volatility. To be clear, we do not need to drill anymore for our domestic consumption. The reason why the gas price is currently so high is because of how the global markets work. Companies that extract it just sell it to the highest bidder, and a lot of the gas extracted from our sites is sold to Europe, rather than being used domestically, even if we have a need for it. The argument that, if we drill more, we will have more, is an oversimplification of the issue. It will mean only that producers sell more and, due to the low domestic tax rates, there will be negligible difference to the Treasury. Our Government would have to directly intervene to ensure that domestically produced gas is used in the UK, and to date we have made no signals that that is something we are willing to do.

On the other part of this question, lobbying and licensing, the Times reported that Kwasi Kwarteng met industry officials in the days after COP to urge them to keep drilling in the North Sea, despite what was actually said in Glasgow. How is that compatible with our goal? Afterwards, on 20 December, the Government published a consultation on a new climate compatibility checkpoint, which will govern our new licensing rounds. Did the Government meet oil and gas executives to discuss this consultation before it went public? Surely, they should see that at the same time, everyone should be allowed to feed into the general discussion. For example, the document states that, for the purpose of licensing, it is not practical to separate oil from gas and that

“we understand that, for many fields, a mix of hydrocarbons (both gas and oil) is usually found, and it can be difficult to predict which reservoir fluids will be encountered at licensing stage. For that reason, we have rejected the idea that oil and gas could be licensed separately”.

However, it is not clear how or why the Government have reached that decision. We know that Cambo, for example, is—or, one hopes, was, in the past tense—going to be drilled for oil. So how have the Government got there?

This is an important point because, although we can expect continued domestic demand for gas during any transition, we already export 80% of our oil, so further extraction is just adding to global supply rather than quenching domestic needs. If that was discussed before the checkpoint was published, there is a clear conflict of interest. Oil and gas companies would obviously be in favour of tying them together, as to separate them would affect their profits. So while it is welcome that we have a consultation proposing consideration of production gaps, other parts of it raise suspicion that this is a tick-box in green-washing. “Consideration” is a really weak word.

Finally, on the current energy costs and the cost-of-living crisis, it is likely to become dire without government intervention, but I challenge the argument that this is because we do not have enough fossil fuels to burn. It is because we do not have enough renewable energy. If there had not been an effective moratorium on onshore wind since 2015, for example, our bills would now be lower. Bills are not high because of the green levies; they have been decreasing, and account for about 3% of gas bills. They are high because, as other noble Lords have mentioned, we have uninsulated homes. If the green homes grant had been better implemented, people would have lower bills. It is easy to see high bills and think that we need more of the product that is causing it but, actually, we need to quicken our transition away from it. Fossil fuels have always been volatile, whereas renewables have consistently become cheaper as well as better.