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.