Offshore Petroleum Licensing Bill

Baroness Sheehan Excerpts

2nd reading
Tuesday 26th March 2024 Lords Chamber

[Baroness Sheehan (LD)]

My Lords, I thank the House for allowing me to speak in the gap. Before I move on to what I had planned to say, I will ask the Minister three questions. First, will the successful licensees be eligible for grants? If so, how much will they be? Secondly, who will be responsible for decommissioning costs throughout the lifetime of the new fields? Thirdly, if in the fullness of time any of the new fields become stranded assets, what safeguards will he put in place to make sure that the British taxpayer is not liable for the bill?

I will keep my remarks very short. I want to make just a few points on the Bill’s conflict with the legally, morally and ethically binding net-zero commitments that the UK has made both domestically and in international fora.

I will start with the Bill’s conflict with the IEA, the International Energy Agency, which knows a thing or two about global energy security. In its 2021 report, Net Zero by 2050 A Roadmap for the Global Energy Sector, the IEA stated that there could be no new oil and gas fields after 2021 if we are to limit warming to 1.5 degrees centigrade. It reiterated this in 2023. Our own Climate Change Committee, in its COP28: Key Outcomes report of January this year, stated very politely that

“the UK should reassess whether further exploration for new sources of fossil fuels is aligned with the UNFCCC principle of Common but Differentiated Responsibility and the Global Stocktake”.

It refers, of course, to our NDC.

A red alert warning from the World Meteorological Organization just last week confirmed that 2023 was the hottest year on record by a clear margin. According to the FT’s editorial team in an opinion article just two days ago, on 24 March:

“More than 90 per cent of the world’s oceans suffered heatwave conditions, glaciers lost the most ice on record and the extent of Antarctic sea ice fell to by far the lowest levels ever measured”.

Given all that, surely discretion is the greater part of valour, and we must proceed with extreme caution and seek to reduce the greenhouse gas inventory as quickly as possible. I know that the Minister will say that he agrees with me and will assert that this Bill does not derail the UK’s direction of travel. But that is exactly what it does. The Bill does not sit comfortably with the Government’s commitments made at COP 28 just a few short months ago, along with 200 other countries, to transition away from fossil fuels and accelerate action in this critical decade. We cannot maintain credibility on the global stage while we say one thing and do exactly the opposite.

--- Later in debate ---

[Lord Callanan (Con)]

My Lords, I thank all Members from across the House for what has been quite a good debate, for the interest that they have taken in the Bill and for the many insightful contributions that we have had today. I think the debate has shown how interconnected the future of North Sea oil and gas production is with the huge effort we are making—and I am grateful to the noble Earl, Lord Russell, for instance, for pointing out the huge effort we are making —to decarbonise the UK economy through what is a renewables revolution. Nobody disputes that. I do not think anybody in the debate disputed the importance of net zero.

The Government’s position is entirely consistent with delivering on our targets, but we have to manage the decline of North Sea oil and gas production in a predictable and responsible way. I thought that was an excellent point made by the noble Lord, Lord Bruce, from the Liberal Democrat Benches. It is a pity that his two colleagues did not reflect his excellent contribution.

Restrictions on future licensing would be a grave act of national self-sabotage and would place in jeopardy more than 200,000 jobs that OEUK figures show are currently supported by our domestic oil and gas industry. It would forego up to 1 billion barrels of oil equivalent and, equally importantly, remove an important source of tax revenue. That would mean more imports, including of liquefied natural gas, which has up to four times the production emissions of our own natural gas—a point well made by my noble friends Lord Lilley, Lord Moynihan and Lord Ashcombe. It would mean that we forego investment in clean technologies and the energy transition that our oil and gas industry is vital to driving forward, and it would leave us more vulnerable to hostile states, as we saw during the invasion of Ukraine. We need this investment, and we need the sector’s existing supply chains, expertise and skills. Introducing annual licensing rounds through this Bill will help to protect this investment. It will strengthen our energy security and support that essential transition to net zero.

Let me now deal with some of the specific point made during the debate. I thank my noble friends Lord Moynihan and Lord Ashcombe for their speeches, which recognised that the Bill will support our essential energy security. However, I am aware that other noble Lords, including the noble Lord, Lord Lennie, the noble Baronesses, Lady Hayman and Lady Young, and the noble Earl, Lord Russell, suggested the opposite. As I outlined in my opening speech, the UK still relies on oil and gas for most of our energy needs and will continue to do so well into the future, despite our excellent record on rolling out renewables. The UK is exceptionally well placed to support our own energy security and that of our neighbours and allies. As has been pointed out, we have pipelines connecting us to Norway, the Netherlands, Ireland and Belgium. We have the second-largest liquefied natural gas port infrastructure in Europe, and our infrastructure was essential to helping out our European friends and allies during the Russian crisis that they all suffered last winter.

Of course, we also have our domestic oil and gas production, which is a vital part of ensuring our own and our allies’ energy security. We currently produce about half our gas demand from the North Sea. The vast majority of UK-produced gas lands in the UK and combines with imports and storage to provide a healthy and well-supplied gas market. While 80% of the oil produced here is indeed refined abroad, 90% of that takes place in Europe, where it is made into the products that we need in the UK. Maintaining this resource reduces our vulnerability and that of our European allies to hostile states and leaves us less exposed to unpredictable international events. If the invasion of Ukraine pointed out anything to us, surely it pointed out that. Following that invasion, it was our domestic capability that helped us to support our European neighbours to wean themselves off Russian gas and oil, which most European states have now successfully done. By giving industry certainty about the future of licensing rounds, the Bill will help safeguard our domestic production and, in doing so, enhance the UK’s energy security.

Next, let me respond to the points raised by the noble Lord, Lord Lennie, and the noble Baroness, Lady Hayman, that the Bill will not reduce energy bills. Of course, it is true that oil and gas are traded on a global market. As a net importer of oil and gas, this benefits us. The Government have also ensured that excess energy profits are being used to ease pressures on families across the country. This support helped to save the average household £1,500 on its energy bill last winter. The difficult but necessary decision to further extend the energy profits levy for one more year will raise an additional £1.5 billion contribution from the sector to help us cut taxes for hard-working families, reward hard work and support economic growth.

I have also heard claims that the Bill affects the UK’s international leadership on climate. I thank my noble friend Lord Lilley for his excellent speech, which showed why that is not the case. By contrast, some noble Lords—the noble Lord, Lord Lennie, the noble Baronesses, Lady Hayman, Lady Sheehan and Lady Blake, and the right reverend Prelate the Bishop of Norwich—suggested that somehow the Bill would negatively impact our climate leadership. Our record speaks for itself. We are, as I constantly repeat, the first major economy to halve our emissions, and we are leading the world with our climate performance. Our 2030 target is one of the most ambitious among major economies, and again I am glad that the noble Earl, Lord Russell, recognised this. The Bill, I repeat, will not undermine those commitments.

Not proceeding with new licensing, as is the Opposition’s policy, is the real risk to our climate leadership. If we lose the skilled jobs that will transfer from oil and gas to renewables, we put at risk the transition to renewables and net zero. Some other noble Lords, including the noble Baroness, Lady Hayman, and the noble Baroness, Lady Jones, who I am sorry to say is no longer in her place—apologies, she is sitting on the Bishops’ Bench, which is a great surprise to us all; I did not see the noble Baroness down there—raised concerns about the tests in the Bill. These tests have been carefully designed to ensure that new licensing supports our important net-zero commitments. The tests are in fact meaningful. Those tests being met would be a reflection of the fact that the UK is a net importer and that production emissions associated with North Sea gas are lower than imported liquefied natural gas.

There was also some discussion of carbon capture, usage and storage. This point was raised by the noble Baronesses, Lady Jones and Lady Young. The Climate Change Committee, often quoted in this debate, has described CCUS as

“a necessity not an option”

for the transition to net zero. CCUS will be essential to meeting the UK’s 2050 net-zero target, playing a vital role in levelling up the economy, supporting the low-carbon economic transformation of our industrial regions and creating new high-value jobs. The first two CCUS clusters are in the north-west and north-east of England, and we are proceeding as fast as possible to final investment decisions for those clusters. They are already generating thousands of jobs in Merseyside in the north-west and in Teesside, areas that the noble Lord, Lord Lennie, and I know well.

I move on to the points raised about marine protected areas. The noble Baronesses, Lady Hayman, Lady Willis and Lady Boycott, raised the important matter of marine protection. Let me also address the questions posed by the right reverend Prelate the Bishop of Norwich. I assure the House that the Government share the desire to protect the marine environment. Indeed, we have committed that we will be the first generation to leave the environment in a better state than that in which we found it. The UK is committed to the 30 by 30 global target under the Kunming-Montreal global biodiversity framework.

We already have a robust regulatory framework in place to ensure that marine protected areas are effectively protected. Licences will be awarded only after ensuring that the environmental regulator OPRED is satisfied that activities will not have negative effects on those important protected areas. Future licensing will not affect our ability to reach our targets for ensuring that our marine protected areas are in a good or recovering state.

Furthermore, it is important to emphasise that human activity is not banned in marine protected areas. We constrain activities in MPAs, but the intention of the policy is not to forbid activity, especially where the environmental impact is assessed as not causing damage and is closely evaluated and monitored. Work is under way to ensure that we strike the right, important balance between our different marine priorities. The soon-to-be-commissioned strategic spatial energy plan and the cross-government marine spatial prioritisation programme will ensure that we take a more strategic approach to identifying future sites for marine developments and energy infrastructure, while allowing for nature’s important recovery.

In response to the questions from the noble Baroness, Lady Sheehan, the North Sea Transition Authority is responsible for ensuring that operators decommission abandoned wells within the recommended timeframe of two to five years. The noble Baroness also asked me if we would be giving any grants for oil production: no is the answer. In fact, the opposite is the case: any new production will generate billions in tax revenues, the very opposite of giving out government grants. The Government continue to work with the NSTA and the Health and—

[Baroness Sheehan (LD)]

The Minister has not addressed my third question, about stranded assets. Should these fields become so in the fullness of time, will he put in place safeguards to make sure that the British taxpayer is not liable for the costs?

[Lord Callanan (Con)]

The noble Baroness often raises this point. The industry pays billions of pounds in taxes every year, and oil companies are ultimately responsible for decommissioning their assets. As has been pointed out, they are commercial operations. If the fields are stranded assets and the oil companies lose money on them, I doubt whether anybody will shed any tears for them. They are responsible for decommissioning the assets, as is taking place now in many of the depleted fields. I think she needs to have a friendly cup of coffee with her noble friend Lord Bruce, who will fill her in on the details of how the industry works.

[Baroness Sheehan (LD)]

Yes, we get billions in taxes; that is because trillions are made in profits. What I am really concerned about is that if the businesses fold, the profits have been pocketed but the taxpayer will be left with the costs. Does the Minister accept that?

[Lord Callanan (Con)]

If the noble Baroness is asking me if they pay billions in taxes and make billions in profits, then yes, I guess the answer is that the international oil companies do very well out of it. Of course, some of them are also financing renewable infrastructure. Some of the big oil and gas companies are helping to invest in CCUS in this country. We very much hope that they will continue to make profits, because it pays our pension funds and a lot of investors, and a huge amount of money into the UK Exchequer that the Liberal Democrats are normally very keen on spending. The noble Baroness needs to allow that money to be raised in the first place. The companies are responsible for decommissioning their assets.

The Government continue to work with the NSTA and the Health and Safety Executive to ensure that well decommissioning is progressing in line with the relevant safety and environmental regulations and standards. That is exactly the same as has been happening previously. The UK has a very robust decommissioning regime whereby operators are responsible for decommissioning their assets at the end of their useful life. This regime of course includes protections for taxpayers, so that the costs fall on those operators. I hope the noble Baroness is reassured by that.

I was of course also pleased to hear the support of the noble Lord, Lord Bruce, for the jobs in the sector. He has a lot of relevant experience, particularly in north-east Scotland. This is in line with the words of Sir Ian Wood:

“Owing to a world-class oil and gas sector, the North East … is home to the critical mass in skills and expertise that will be crucial to ensuring that we successfully accelerate new and green energies, protecting and creating jobs as we do so”.


I am pleased to have the support of the Labour Party, but we must retain those skilled jobs in the industry, and our firm belief is that this Bill will help us to achieve exactly that.

To conclude, the Bill will give industry the certainty and confidence it needs to continue to invest in the North Sea, strengthening our energy security and supporting the energy transition as we move towards our goal of net zero, through the introduction of annual licensing rounds, subject, of course, to all the appropriate tests being met. I look forward to continuing the scrutiny of the Bill as it progresses through the House, but in the meantime, I beg to move.