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.