Offshore Petroleum Licensing Bill

Lord Callanan Excerpts

2nd reading
Tuesday 26th March 2024 Lords Chamber

Moved by

[Lord Callanan]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, the UK recently achieved an important milestone in the global fight against climate change. We were the first major economy to set a net-zero target in law, and we are now the first major economy to have halved our emissions since 1990. Of course, we are not resting on our laurels as we pursue our goal to reduce greenhouse gas emissions by at least 68% by 2030. Between 2010 and 2023, the UK has seen £300 billion of investment into low-carbon sectors, demonstrating that our approach to net zero is working. That is because it is an approach that is proportionate, fair and grounded in reality.

We recognise, of course, that the UK still depends on fossil fuels for meeting around 75% of the energy demand and that that is something that cannot be changed overnight. The independent Climate Change Committee’s data shows that even in 2050, when we reach net zero, oil and gas are expected to continue to play an important, albeit smaller, part in meeting demand and maintaining our national energy security, so managing our remaining reserves effectively will be critical to the transition, and that is why the Government are bringing forward this Bill.

I believe that many of us across the House agree that as a country we must reduce our reliance on oil and gas, but as we do so the question we must answer is: from where do we want to source that oil and gas to meet that residual demand? Oil and gas production in the North Sea has been hugely successful. It has created and supported hundreds of thousands of British jobs and contributed billions in tax revenue over many decades. It continues to provide us with secure, reliable energy and to support jobs and the economy.

North Sea gas currently provides around half the UK demand. OEUK figures show that the sector supports around 200,000 jobs, adds around £16 billion annually to the economy and brings in billions in tax revenue. I think particularly of how important tax revenue like that was in supporting thousands of households with their energy bills following Russia’s illegal invasion of Ukraine. This unprecedented support, among the most generous in Europe, was equal to around half the average family’s energy bill or about £1,500. Without tax revenue from industry, that burden would have fallen to taxpayers alone.

Domestic production is also an important part of our national energy security and the energy security of many of our European neighbours. The simple fact is that if we did not have access to this secure and reliable source of energy, we would be even more reliant on imports. The Government’s position is clear: where oil and gas are needed in the decades to come, as much as possible should come from our own waters.

Having said all that, the North Sea is a mature basin and production is in decline. Even with continued exploration and development, production from the basin is expected to decline by around 7% a year, which is, incidentally, faster than the average that is globally required to align with the IPCC’s 1.5 degrees Celsius pathway. By 2050, the UK’s North Sea oil and gas production is projected to fall by over 90% from today’s levels. The choice before us is whether we seek to reduce our reliance on imports through continuing to issue UK production licences or stop investment in British oil and gas and import even more from abroad.

Without investment in new UK oil and gas fields, we would lose out on more than 1 billion barrels of oil and gas, worth billions in revenue. More than this, our production would decline faster than we could build low-carbon replacements and before the workers in the sector could smoothly transition to jobs in renewable industries. We estimate that such a decline would increase UK import dependence from around 60% now to 70% by 2035. That is more liquefied natural gas with higher production emissions and none of the economic or energy security benefits.

If there was no investment, tens of thousands of skilled British jobs would be placed in jeopardy. Industry leaders have already warned that North Sea workers are at risk of becoming

“the coal miners of our generation”

if we fail to manage the declining North Sea basin in a sustainable way. We cannot allow this to happen.

A recent report from Robert Gordon University found that over 90% of the UK’s oil and gas workforce have medium to high skills transferability to the offshore renewables sector. A key commitment of the North Sea transition deal is to ensure that people and skills from the existing oil and gas workforce are transferrable across the wider energy sector. Make no mistake: these skills are in demand the world over. If they are not wanted here to deliver our own production and our own energy transition, they will surely go overseas and deliver someone else’s.

The general secretary of the GMB—not somebody I quote very often—recently wrote:

“In an increasingly volatile world the UK needs plans and not bans for the future of our energy sector and the transition to net zero”.


In this particular case, the Government could not agree more. We need oil and gas and our domestic oil and gas sector. Industry knows it, the unions know it, everybody knows it—except, perhaps, the noble Lord opposite—and I urge those opposed to continued licensing to think again.

We all want a successful energy transition. This means accepting that oil and gas will continue to play a role in meeting our energy demands for decades to come, and supporting investment and jobs in the North Sea through new licensing so that we can continue to produce that oil and gas from our own resources. However, it also means that during this transition, while we are decarbonising all other sectors of the economy, we should also produce these fuels in the cleanest way possible.

Since 2019, the carbon intensity of global oil and gas production has fallen by around 3%. From the North Sea, it has fallen by 14%. We will go further. The North Sea transition deal commits the offshore oil and gas sector to reducing emissions from operations to 50% of 2018 levels by 2030, with emissions already falling by 23% by 2022. To support this, we have committed to zero routine flaring and venting for both oil and gas by 2030, going further than the World Bank’s zero routine flaring initiative. Industry has made significant progress in meeting this target, with already a near 50% reduction in flaring since 2018. The NSTA already expects all new developments to have zero routine flaring and venting.

This Bill is part of the effective management of the energy transition. This new legislation will require the North Sea Transition Authority to run an annual process for new exploration and production licences in the UK continental shelf, subject to several key tests being met: first, that the UK is projected to remain a net importer of both oil and gas, and, secondly, that carbon emissions associated with UK gas are lower than imported liquefied natural gas. The tests ensure that annual licensing can take place only where it remains the right thing to do.

A more predictable licensing regime will not take us back to the era of peak production in the North Sea; as I said, the reality is that this is a fast-declining basin. Instead, new licensing will simply seek to manage that decline rather than to increase oil and gas production above current levels. However, it will give industry the certainty and confidence it needs to support the continued investment necessary both for our energy security and to help deliver the energy transition. That is an investment worth billions of pounds from companies such as Shell—which is also planning major investment in low-carbon and zero-carbon infrastructure, including offshore wind, hydrogen and carbon capture, utilisation and storage—and BP, which plans to invest up to £18 billion in the UK’s energy system by the end of 2030, in addition to its operating spend in the United Kingdom. The Bill demonstrates the Government’s ongoing commitment to the industry and helps to provide the certainty to ensure that the UK continental shelf remains an attractive investment as we transition to renewables.

The UK is a world leader on climate. We are one of the most decarbonised economies in the world and have met every one of our legally binding carbon budgets, but the fact remains that we will still need oil and gas in 2050, and it is simply common sense to use what we have. If we produce oil and gas here, it is the British public and our European allies—not foreign, and potentially hostile, regimes—that will benefit. If we produce here, we can be safe in the knowledge that our stringent regulations have kept the environment safe. If we produce here, we can reduce our reliance on imports, such as LNG, that have up to four times the production emissions of domestic production. If we produce here, we support a vibrant industrial sector, British jobs and communities that will be key to delivering the energy transition, rather than see them disappear overseas to help to deliver someone else’s. I believe that the choice is clear.

I will leave the House with the words of the chief executive of the NSTA, who said that

“we won’t get to net zero without oil and gas”

and that

“producing as much of the oil and gas we need as possible domestically is the right thing to do, for security and the economy”.

The North Sea has powered us through the last half century and, if we manage the transition correctly, it will power us through the next. I beg to move.

--- 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.

[Baroness Blake of Leeds (Lab)]

Before the Minister sits down, could he answer my question about whether discussions are continuing on the issue of methane, as was raised in the other place, and particularly the withdrawal of the amendment from the right honourable Alok Sharma? Can we expect to have some discussion on where those conversations might lead us, if they are indeed taking place?

[Lord Callanan (Con)]

As I always do, I will listen very carefully to the point of view the House expresses in Committee, and, as is normal practice, as a Government we will then consider whether there are any concessions or changes we want to offer in the Bill. I am sure we will want to talk further to the noble Baroness and her colleagues at that point.

Bill read a second time and committed to a Grand Committee.

Offshore Petroleum Licensing Bill

Lord Callanan Excerpts

Committee stage
Tuesday 23rd April 2024 Grand Committee

With that, I look forward to the Minister’s comments.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, first, I thank everybody who contributed to what I think has been a positive debate on a number of important issues.

Amendment 1 in the name of the noble Baroness, Lady Hayman, seeks to prevent the NSTA inviting applications for licences until regulations banning non-emergency flaring and venting on new offshore installations are in force. After two years, it would also prevent the NSTA inviting applications until additional regulations banning all flaring and venting on existing offshore installations are in force.

Flaring and venting are controlled processes to dispose of gas. These activities can take place for emergency or safety purposes, during non-routine operations and on a regular basis, as a result of the design of existing platforms. This latter category is known as routine flaring and venting.

The Government are clear on the importance of having a target for zero routine flaring and venting in the North Sea. This is a key measure for reducing greenhouse gas emissions from production. We are committed to the World Bank’s zero routine flaring initiative, which aims to eliminate the practice globally by 2030; indeed, we are going further with a commitment to ending not just flaring but venting for both oil and gas by 2030.

The North Sea Transition Authority’s current strategy includes enforceable obligations on industry to reduce greenhouse gas emissions from a range of sources, including flaring and venting. As the noble Lord, Lord Bruce, and my noble friends Lord Moynihan and Lord Lilley pointed out, the NSTA’s current guidance to industry also makes it clear that all new developments should be planned on the basis of zero routine flaring and venting. Further, the new OGA plan, published last month, confirms the expectation that there should be zero routine flaring and venting on all platforms from 2030 and requires industry to report in more detail, including on financial planning, to ensure continuous improvements in flaring and venting.

The UK’s proactive approach is already reaping rewards. Based on the latest data, North Sea flaring is down by 50% since 2018. The sector is on track to deliver on the ambitious decarbonisation target in the North Sea transition deal to reduce emissions from operations to 50% of 2018 levels by 2030, ultimately ensuring that the UK continental shelf reaches net zero by 2050. Key to delivering a 50% emissions reduction by 2030 will be eliminating routine flaring and venting in a responsible manner and electrifying platform operations to enable this to happen.

I say in reply to my noble friend Lord Moynihan that it is the Government’s view that our 2030 flaring and venting target is already ambitious. Significant changes to infrastructure, which require appropriate time and planning, need to be made. If we do not carefully manage the ending of routine flaring and venting, it will lead to the early closure of platforms—I suspect that some noble Lords would welcome this—and the potential loss of both the appropriate UK production and the jobs, tax revenue and economic activity that go with it.

Of course, as I have pointed out repeatedly, loss of domestic production will also increase our reliance on imports, including liquefied natural gas, which, as we have said repeatedly, has higher production and transportation emissions. My submission is that that would make no sense either economically or from the point of view of emissions. As drafted, this amendment would also prohibit flaring and venting for emergency and non-routine purposes after two years. That would create unacceptable health and safety risks for workers and would likely result in a shutdown in production in those circumstances. Taking on board the suggestion of the noble Baroness, Lady Blake, I am always happy to meet further with the Opposition to discuss this important matter.

Amendment 2 in the name of the noble Baroness, Lady Hayman, would require the Secretary of State to publish a green skills retraining plan for oil and gas workers before the NSTA could invite applications for offshore production licences. I can reassure the Committee that the Government absolutely recognise how important the skills, expertise and resources of the oil and gas industry are for our transition to cleaner technologies. A report by Robert Gordon University found that over 90% of the UK’s oil and gas workforce have medium to high skills transferability to the offshore renewables sector.

It is vital that the transition to cleaner energy is managed carefully and responsibly. We must ensure that oil and gas jobs are not lost before renewables and other clean technologies grow sufficiently to take up those valuable skills and workers. That is why we are taking action, including by introducing this Bill to safeguard those jobs for the future.

To take an example, a key commitment of the landmark North Sea transition deal between the Government and the industry is to ensure that people and skills from the existing oil and gas workforce are transferable across the wider energy sector. This includes the development of a digital skills passport to facilitate this transferability, which is being funded by the Scottish Government and industry. We are interested in this work and keen to take it forward. Indeed, we are working with the Scottish Government, the industry, relevant skills bodies and trade unions to support the delivery of this work, which is led by Offshore Energies UK and Renewables UK.

In addition, the Government are shortly due to launch our green jobs plan in the first half of this year, supported by the green jobs delivery group. This plan will provide the actions needed to ensure that we have the skills and occupations within the UK workforce, at the right time and in the right place, to develop our net-zero, nature and energy security targets.

All in all, the Government’s spending and policy ambitions will support up to 480,000 green jobs by 2030. The additional requirement that this amendment places before further licensing can take place would damage investor confidence and cause confusion for industry, employers and the workforce. It would therefore only undermine the ongoing work across the UK and could be inappropriate, given the responsibilities of the devolved Administrations also in this area.

Amendments 6 to 8 are in the name of the noble Earl, Lord Russell. Amendment 6 would remove requirements on the NSTA to invite applications for production licences when both the net importer and carbon intensity tests have been met. I take this opportunity to remind the Committee of the purpose of the Bill: it is designed to give industry certainty on the future of licensing rounds. By providing industry with this confidence, the Bill will support the required ongoing investment and protect the jobs and skills required to support the energy transition. Amending that duty on the NSTA when the net importer and carbon intensity tests have been met would undermine the purpose of the Bill and the confidence that it is designed to provide, and will put these important benefits at risk.

Amendment 7 would modify the duty that the Bill places on the NSTA, so that only companies that have committed to investing half their profits from activities carried out under licences in the green UK economy would be invited to apply for production licences.

The Government have a tremendous record for attracting investment into green industries. Since 2010, we have seen around £300 billion of public and private investment in the low-carbon sectors. According to BloombergNEF, total public and private investment in UK low-carbon sectors reached £60 billion in 2023—up by 71% in real terms from 2022.

--- Later in debate ---

[Lord Callanan (Con)]

I was just making the point that the licences provided for in the Bill, where granted, will give exclusive rights to explore an area. Additional permissions will be required before any activity can take place, such as the drilling of a well or construction of a development facility. At each stage and ahead of every such permission being granted, an environmental assessment takes place including, where necessary, public consultation and consultation with nature conservation bodies, to ensure that the impact on the environment, including MPAs, is taken into account in the licensing process.

In response to a specific question, I am not aware of my department having received any communications from the Joint Nature Conservation Committee about the Bill, but noble Lords can be assured that the Government remain committed to ensuring that we meet our Environment Act target on MPAs.

The Government’s marine spatial prioritisation programme will ensure that a strategic approach is taken to identifying future marine development sites. The programme is exploring opportunities to optimise the use of the seas and enable marine activities to co-exist.

Similarly, the strategic spatial energy plan, which the Government will commission in spring 2024 from the National Energy System Operator, will assess the most efficient locations and types of energy infrastructure, reducing inefficiency in infrastructure build. The Bill will not undermine our ability and ambition to ensure co-existence between strictly regulated human activities that may be both possible and necessary in an MPA and, of course, the wider marine environment, including fishing, offshore wind construction and offshore oil and gas, to ensure that we continue to strike the right balance between the full range of our different priorities.

I hope that with those assurances and the explanations that I have been able to provide, noble Lords will feel able not to press their amendments.

--- Later in debate ---

[Lord Moynihan (Con)]

My Lords, I recognise the expertise of the noble Lord who has just spoken, but I think that the two tests in the Bill—which is the subject of this group of amendments, because we are looking to see whether it is feasible and appropriate to add to those tests—are important tests.

On the net importer test, it is fundamentally important as a country to have security of supply. Security of supply comes through diversity of supply, and that security of supply has been shown to be exceptionally important recently, not least with the Russian invasion of Ukraine and the impact that had on western Europe’s gas, being at the end of the pipeline from Russia. It was important to bring home the reality that we need to develop our own energy sources efficiently and economically, in the most benign, sustainable way that we can possibly do with modern technology. The net importer test is important, and I am pleased that it is in the Bill. It absolutely underpins the concept of security of supply, which has always been the basis for our energy system in the United Kingdom.

The carbon intensity test is also relevant, in this day and age of developing reserves internationally and bringing them here with LNG, then transferring that LNG, through a process, to natural gas for power generation in the United Kingdom. If the LNG had a lesser carbon footprint than what we produce in the North Sea, then there would be a very real argument for not having further licensing rounds in the North Sea, because the environmental impact of what we do in this industry is vital, and that is shared on both sides of the Committee.

It is important to question whether we should move towards a position whereby we go to a global test, which the noble Lord, Lord Lennie, suggested, through what was probably a probing amendment rather than one that he would like to see in the Bill. We have an important but minimal impact on whether that 1.5 degree average surface warming above pre-industrial temperatures under the Paris Agreement is achieved. We should be looking to make sure that, as far as possible, everything we do in the North Sea is as sustainable as possible, with the lowest possible carbon footprint. As far as I am concerned, sustainability is one of the four pillars for the consideration of our energy sector. We must address sustainability concerns; we must address GHG emissions; and we must ensure the protection and stewardship of our environment. As I have mentioned, at the same time, we need to have security and reliability. That is the second pillar. We must ensure that current and future energy demand is supplied reliably and responsibly, and, as I said earlier, is able to robustly withstand system shocks.

The third pillar is accessibility and affordability. We must enable energy provision to consumers while minimising cost, and we must support social and economic development. That is one of the reasons we have diversification of supply in the country and the free market to ensure that that is the case.

That free market point is important because we need economic viability of investment. Investment in, and the adoption of, energy solutions characterised by a sustainable return on investment is the fourth and most fundamental pillar. I would just question whether we need to go further than the two tests in the Bill.

I have never, either at Second Reading or in Committee, thought that this Bill was top of the agenda in terms of importance to any Government. I am not sure that it is. I agree with the noble Lord, Lord Bruce, that we can have annual licensing rounds if we want them. In any event, if it is important that they are annual as opposed to biennial, to me, is debateable. The important thing is that all the licences that are awarded must be awarded against a set of criteria; increasingly important in the set of criteria is the environmental footprint around every single aspect of offshore oil and gas production.

We need firm, reliable energy in the United Kingdom to underpin a growth in renewables, but that firm power must be uninterrupted. At a time when we are not moving towards new nuclear as fast as we should be, gas is that basic firm power that will fuel the whole electrification of our system. The other side of this coin is that we are looking for far greater electrification of our rail and wider transport system. Well, for that, you need firm power.

How renewables are at the moment, as well as the lack of good battery storage power—it is interesting to note that the existing battery storage power in the UK covered approximately only eight minutes of average UK electricity demand for the whole of 2023—this lack of battery technology and breakthrough on renewables, without firm power, shows just how much further we have to go. We must have improved and enhanced battery technology. We need firm energy as our lifeblood in this country, not sporadic energy, although moving towards a greater reliance on renewables is, to me, critical. That needs to be underpinned by maximising our gas reserves in the United Kingdom.

Given the limitations of this Bill, those two tests seem reasonable and appropriate to me. I am not sure that the additional tests that are being recommended in the amendments are necessary or helpful in achieving the four pillars that I set out in response to the noble Lord’s very good introduction, if I may say so, of his amendment.

[Lord Callanan (Con)]

I thank all those who contributed. I start with Amendments 3 and 18 in the name of the noble Lord, Lord Lennie, which seek to impose a new climate change test as part of this Bill.

I say at the outset, in response to the challenge presented by the noble Baroness, Lady Jones, that this Bill is entirely consistent with the Government’s target to reach net zero by 2050. Even with continued exploration and development, UK oil and gas production is expected to decline by 7% a year. This decline is faster than the average annual global decline needed to align with the IPCC’s 1.5 degrees Celsius pathway. The noble Baroness might not like those facts but they are facts nevertheless.

As net importers, we produce less than we need—a point made ably by the noble Lord, Lord Bruce. This is projected to remain the case even as our demand for oil and gas shrinks as we achieve net zero. There are already a number of climate checks to ensure that offshore oil and gas activities remain consistent with our climate goals: the climate compatibility checkpoint ensures that the compatibility of future licensing with the UK’s climate objectives has been evaluated before a new licensing round opens; and the North Sea Transition Authority has a specific obligation to assist the Secretary of State in meeting the net-zero target. The recently published OGA plan makes clear that, for production to continue in the North Sea, it must continue to become cleaner. Adding a new test to this Bill is, in our view, therefore unnecessary.

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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.

[Baroness Jones of Moulsecoomb (GP)]

It is hard to summon up the energy to rebut anything. What the Government proved to us yesterday with the Rwanda Bill is that they are prepared to deny reality. So I beg leave to withdraw my amendment.

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[Lord Lennie (Lab)]

My Lords, I thank everyone who has spoken in the debate so far. I thank the noble Earl, Lord Russell, for his proposal about omitting Scotland from the Bill, and the noble Duke, the Duke of Montrose, for his horrified response to the proposal to omit Scotland from the Bill. I am not sure about the debate on Scotland, to be honest, but on balance I think I would keep Scotland in the Bill. I say to the noble Baroness, Lady Jones, that I can see why these amendments would delay the Bill coming into effect, which would not be a bad thing. It would be better if the Bill were not here at all, but, hey, we cannot have everything we want.

The Government have admitted that the Bill will not take a penny off energy bills and will do nothing for energy security, because oil and gas are sold on the international market. The Bill will send precisely the wrong signals to investors about the UK’s commitment to the green transition: Amanda Blanc, chief executive officer of Aviva said that new oil and gas drilling

“puts at … risk the jobs, growth and the additional investment the UK requires to become more climate ready”.

The Bill has been slammed from many quarters, including some surprising ones, such as Theresa May, former Prime Minister. The noble Lord, Lord Browne, former chief executive officer of BP, said it

“is not going to make any difference”

to Britain’s energy security.

Annual licencing rounds will not boost the UK’s economy, as North Sea oil and gas is already in decline, as the Minister confirmed, and over the next decade, in Scotland and England, there will be 25 new jobs in clean energy for every job that is lost in oil and gas. That is what we have to secure: the transition of workers from oil and gas to the new green, clean energy. More extraction in the North Sea will not improve any security or lower energy bills. Remaining reserves are mostly oil, not gas, and 78% of that oil is exported, as it is not in the right form for use in the United Kingdom. The UK is already feeling the devastating impact of climate change, and granting licences simply amplifies the effects. Campaign groups have indicated that the current licences will send “a wrecking ball” through the UK’s climate commitments.

[Lord Callanan (Con)]

First, I thank noble Lords for their brevity on this group.

Amendment 20 seeks to amend the Bill to exclude Scotland. Of course, the vast majority of offshore oil and gas activity takes place off the coast of Scotland to the benefit of all citizens across the United Kingdom. Excluding Scotland from the scope of the Bill, which I understand is the intention of the amendment, would significantly undermine the benefits that the Bill is intended to create. It would risk causing unnecessary confusion for industry and create considerable complexity for the independent regulator. This is particularly true as we transition towards a low-carbon economy and workforce.

As I have already mentioned in previous groups, a report by Robert Gordon University found that over 90% of the UK’s oil and gas workforce have medium to high skills transferability to the offshore renewables sector. Many of those, of course, are in Scotland, where OEUK estimates that over 90,000 jobs are supported by the oil and gas industry. If we rush the transition, or create additional uncertainty in the investment environment, we risk losing the jobs and skills that we will need as we scale up the clean technologies needed to realise that crucial net zero target.