Offshore Petroleum Licensing Bill

Lord Moynihan Excerpts

2nd reading
Tuesday 26th March 2024 Lords Chamber

[Lord Moynihan (Con)]

My Lords, it is a pleasure and an honour to follow the right reverend Prelate the Bishop of Norwich, although I humbly reflect that I see nothing in the Bill that detracts from the energy transition. I will try to set out the arguments why.

I am in agreement with the noble Lord, Lord Bruce. It reminds me of the time many years ago when I had the privilege of being Minister for Energy, back in 1990. He set out a very reasoned case about how difficult this Bill is in many respects in trying to balance the importance of energy transition with recognising the truism that this is not a zero-sum game with oil and gas production in the North Sea.

I declare my interests as set out in the register. I welcome the Bill, although I share the views of noble Lords on both sides of the House in that I am uncertain that it is needed. We call on the Minister a great deal to do admirable work in this House; I think this might have been an opportunity when we did not require his presence. The reason why I think it may not be needed is that it just confirms the policy framework to which existing legislation, licensing rounds, customs and practices in the North Sea already apply.

Why this Bill may prove to be important is that it can underpin a prioritisation of the security of supply as we move towards the sustainable energy policy structured on the net-zero ambitions we all share. I mentioned 1990, when I was Minister for Energy when Margaret Thatcher’s Government first introduced a renewable energy programme into the UK, as has been mentioned, following the seminal speech she gave in 1989, and we launched the non-fossil fuel obligation to provide a market framework to help accelerate the move to renewables and nuclear power. We now measure our trajectory towards net zero by using 1990 as our baseline and my noble friend the Minister is right that we lead the world in the journey to net zero and should retain energy transition as our major priority.

Some 34 years on, we are now half way to net zero. However, we should be under no illusion that this has been, to a large degree, a function of the imposition of measures, with only marginal consumer sensitivity, knowledge or reaction. Changes from oil- and coal-fired power generation to renewables and gas are key policy developments in power generation and have been significant in the build of the combined-cycle gas turbine market and the declining use of coal for power generation in the UK. But to achieve the next 50% of the reductions to get to net zero, we will be asking consumers for something far greater, to go far further in changing their lifestyle—what cars they drive, how they travel, how they heat and insulate their houses and, ultimately, what they eat. We have only 26 years left to achieve that important social and behavioural revolution. I share my noble friend Lord Lilley’s view that there is considerable doubt as to whether we will be carbon-neutral by 2050, but, if we are, it will a private-sector driven change which helps us reach that goal. There is nothing in the Bill that would negatively impact on the vital energy transition measures.

Additionally, a holistic approach to the environmental impact of everything we do offshore must be a priority—being as clean as possible, improving efficiency, significantly reducing all forms of pollution and substantially mitigating carbon emissions. By employing these measures, it will not be difficult to demonstrate as central to the Bill that improved environmental practice will ensure that gas production in the UK will meet one of the Government’s key criteria; namely, that the carbon intensity of natural gas is lower than that of liquefied natural gas imported into the UK. The baseload demand—to which add the demand for firm power, as mentioned by the noble Lord, Lord Bruce, as opposed to the intermittent power generated by renewables when the wind blows—will ensure that the UK is projected to remain an importer of both oil and gas for many decades to come.

This is a function—it is so important—of both the need for firm power and the actions of a responsible Government to recognise that security of supply is achieved by diversity of supply, and nothing is more secure than the production of energy at home rather than an increasing dependence on imported oil and gas, whether in the form of LNG or interconnectors. I prefer to think that the Bill was not the product of a good lunch but what my noble friend the Minister referred to as the “energy shock” created at the time of Putin’s invasion of Ukraine, which supports the critical importance of maximising domestic production.

Philip Lambert, one of the foremost energy specialists in the UK, has noted:

“The starting point is that the offshore oil and gas sector in the UK is an existentially important foundation stone of the UK industrial base and UK energy security future—the maturing but still prolifically producing UK North Sea oil and gas province, still incredibly producing just over 1.3 million barrels of oil a day, or, to put it another way, 50% of our needs, 50 years on from first production”.


The key point of this and the hoped-for outcome of the Bill is to emphasise that what the UK industrial sector now needs is greater help from the Government, both to build up renewables and to maximise oil and gas production from the 1.3 million barrels of oil today, resulting in a postponement of decommissioning across the UKCS and genuine maximisation of tax proceeds, while preserving hundreds of thousands of oil and gas-related jobs as they migrate across through energy transition to renewables.

We should not pander to those who welcome the fact that we would, unforgivably, be leaving stranded under the seabed over 10 billion barrels and upwards of $700 billion-worth of UK national wealth by revenue, notably in the prolific and still highly prospective west of Shetlands region but also in the central and southern North Sea, where new seismic and technical breakthroughs are facilitating renewed hydrocarbon promise, with enhanced and improved carbon reduction techniques, services and systems.

Of course, the noble Baroness, Lady Willis, and the right reverend Prelate are right that it is vital that the industry focuses on its impact on special marine environments. I am pleased that that will be debated in Committee as it is an exceptionally important point. It should be a major factor in determining where licences are issued and under what conditions. But the ideologically enforced stranding of the North Sea’s responsible hydrocarbon reserves, which I think is a misplaced tenet of net-zero ideology, will, paradoxically, be highly damaging to the UK’s decarbonisation efforts, which, as I have mentioned, I fully support.

The ironic and perverse outlook is based on the estimate of UK oil and gas demand. Increased demand is a reality, despite the very welcome transition measures which will support the development of renewables and the early green shoots of a functioning and growing nuclear programme, which, I might add, nobody believes is going to have a significant impact on the UK economy until 2035 and later—sadly; I wish it was much sooner. That is the reality and we have to look at the energy balance now and recognise that there is a balance between growing renewables and the need for firm power which comes principally through our own gas reserves but also imported gas.

The moves to diminish oil and gas production will inevitably cause a rapid increase in imports of higher carbon per barrel oil and gas from countries with much less responsible adherence to best practices, as well as causing an unnecessary reduction in home-grown production. If you combine that with the possible shutdown of the aged Rough storage field due to well integrity problems, we risk either energy and power shortages in the UK or an emergency fall back to coal. Genuine decarbonisation efforts by facilitating the seminally important UK/European coal to gas switch continue to be essential and I am sorry that that is not more clearly stated as an objective in the legislation we are considering.

This policy, based on the tenet that we proactively maximise our gas reserves to demonstrate irrefutably and boldly to Putin and his henchmen that not only will he never win the military war but he is comprehensively losing his westward-facing, gas-driven energy war on Europe, is welcome. Upholding national and global energy security has therefore now become an even more integral and vital part of the wider struggle against regimes determined to destabilise western Europe.

Failure to combine the Bill with a supportive tax regime merely disincentivises new investment, accelerates oil and gas production declines, accelerates the economic need to abandon maturing fields and thereby, paradoxically, reduces the net tax receipts for the Government. It costs potentially hundreds of thousands of skilled jobs and denies the UK tens of billions of dollars of badly needed inward investment into the economy. My noble friend Lord Lilley mentioned the key point: it stunts the supply but does not address the demand.

The still prolific and prosperous UK North Sea sector, with 3.5 billion barrels of already discovered but still to be developed reserves, could have a similar bright future to underpin the necessary transition to renewables by supplying us with firm power in the interim period. Rapidly increasing renewables without gas means intermittency in the energy system, which, in effect, leads to more energy insecurity, not less. Just look at California’s woes if you want to underpin this point.

In very few countries is oil and gas so important and coal so unimportant to the energy security and economic well-being of a nation than in the UK today. Oil and gas represents 75% of the energy lifeblood of the UK, a percentage which will remain robust over the new two decades, with gas gaining and oil failing. As I said at the outset, energy transition remains the most important point—focused on mitigating carbon emissions in the exploration, appraisal and production of oil and gas remaining paramount and new technologies and new renewables coming on stream.

Offshore Petroleum Licensing Bill

Lord Moynihan Excerpts

Committee stage
Tuesday 23rd April 2024 Grand Committee

[Lord Bruce of Bennachie (LD)]

My Lords, I rise to speak briefly to this group of amendments. Noble Lords will know that I have spent pretty much all my adult life in the north-east of Scotland and have seen the North Sea oil and gas industry pretty much from its inception right through to where we are today. It is a declining industry, as the right reverend Prelate rightly said, and it will continue to decline whatever we do. The question is: how quickly, and how will it impact the transition?

Turning to Amendment 1, on flaring, as far as I understand it from the transition authority, all new developments that are approved will be zero flaring, so, in a sense, the amendment is already being tested. I do not have a problem with it, but I think that is the case. I accept that the desire to reduce or eliminate flaring on existing fields leaves a tension as to timescale. It would be good if it could be speeded up, and the transition authority should be encouraged to make that happen, but it is not quite as easy as people say, because it has implications for the physical operation of platforms. However, I do not think it is a wrong aspiration.

On Amendment 2, on green skills, we should absolutely be developing them. However, the point I hear every day in the north-east of Scotland is that we are producing oil and gas and it is going to decline, but its revenue, technology and supply chain are all being redeployed to the transition. If we do not have that revenue, our ability to redeploy will be slowed down or stopped, and that is a real factor.

There is huge enthusiasm in the north-east of Scotland for the rapidest transition we can make. Indeed, just this week, one of the largest offshore wind farms in the world has been announced, off Peterhead. This is an investment of £3 billion in 35 turbines and potentially hundreds of jobs; there is huge enthusiasm for that. A lot of that will be going to companies in the oil and gas supply chain. The really important thing here is to get the balance right. If we accelerate it too quickly, that supply chain will disappear. The faster we bring in the investment in offshore, the faster we can make the transition, but it is really important to get the balance right. That is the debate the north-east of Scotland wishes to happen nationally.

That is one of the reasons why I support my noble friend’s amendment to replace “must” with “may”. As I said at Second Reading, the Bill is not necessary because we can issue licences whenever we like, and it has been up to the transition authority to determine whether that may be the case. To those who say that we should not have any more licences, I do not mean to be patronising at all, but some understanding of the North Sea reveals that there are sometimes requirements to bring things on stream in order to facilitate decommissioning, as well extending the life of existing infrastructure. Saying that it is not going to be done at all will probably almost immediately lead to a situation in which the practicalities mean that it makes more sense. So, there should be that discretion. However, the onus should be put on the transition authority to do that only if it believes it is necessary in order to achieve the transition in an orderly and efficient manner. That is essentially why the amendment makes practical sense.

Investing half the profits in renewables is a good idea. I am not sure whether one should be quite as specific as that; however, the reality is that the companies I talk to are investing increasingly in renewable energy because they can see that oil and gas is a declining asset. They know, as the noble Lord, Lord Deben, knows, that every projection for oil and gas through to net zero still has oil and gas in the mix.

So, oil and gas will be around. There is a sensible question to be asked: why should it not be ours, rather than importing it, as long as we can do that in the most efficient and least environmentally damaging way? I accept that it has an impact. In the process, we can ensure that the transition from the oil and gas industry to the renewables industry enables the jobs, the technology and the companies to be smoothly part of it. There is a real flight of investment from the UK in this sector right now, because of a combination of uncertainty—the Labour Party’s policy does not encourage people—and the Government’s confusing people, I have to say to the Minister. On the one hand, we have a Bill that says, let us have an annual licensing round; yet, on the other hand, we are saying that we are going to tax the industry to the nth degree.

Frankly, a lot of the companies are saying that the UK does not seem like a decent investment. For those in this room who are not keen on the North Sea, that may make them all happy but there are consequences. It is a successful major industry and a significant part of our economy. It is one of our high technologies. We are the world-leading experts in subsea technology. About one third of the market is UK-based, driven by what we do in the North Sea. To throw all that away, if we do things too quickly, would be a criminal waste of talent and resource, and would be an economic self-wound. We can do this properly and right, in an orderly fashion, or we can try to reverse it, which is foolish and will not work, or we can accelerate it at a level that would be damaging and destructive.

These amendments set the balance, I hope. We can make sure that if we are going to manage this transition and the decline in the North Sea, it is done in a way that respects the contribution that the people who have developed this industry over the past 40 years have given and can give. It would also allow us to develop the new technologies at a pace that will create a viable industry quickly, without causing a huge dip in economic activity and unemployment, which can be avoided.

[Lord Moynihan (Con)]

My Lords, my interests are set out in the register. The noble Lord, Lord Bruce, did not quite do himself a service by saying that he was there at the start 50 years ago; I am sure it is little bit less than that. I was very much involved some 35 years ago as Minister for Energy, at the time when this whole question started. There was extensive gas flaring in those days and no value was associated with gas. Therefore, the environmental impact was appalling and we wanted to assess it, especially when it came to the central North Sea. The southern North Sea had yet to be moved forward. The northern North Sea had far less of a problem of associated gas, but the central North Sea fields were very much in the context of what we are discussing.

I echo many of the comments of the noble Lord, Lord Bruce, about these amendments, in particular Amendment 1, which I want to address. The important points he has raised go to the comments of my noble friend Lord Deben. All new developments absolutely should be planned on the basis of zero routine flaring and venting. That is the case, as of today. I hope that the Minister can echo that point, because that is substantively what the amendment seeks to achieve.

My second point is that it is not wise to put equal weight on the environmental impact of venting and flaring. Venting is far worse. Methane is about 30 times more damaging to the environment than CO₂, which comes, effectively, from the flaring process. However, both are recognised by everyone who works in the oil and gas sector, particularly the supply and service sector, as practices we should end. There is a clear, unequivocal decision by government and by everyone working in the sector that we should bring these practices to an end by 2030.

The question is one of timing. As I read it—I may be wrong—the amendment is really about whether, two years on from the Bill receiving Royal Assent, we start the process as though it is 2026 rather than 2030. There is merit in considering that in detail, but we should also look at the industry’s capacity to retrofit by that timetable. It may be possible, but my research shows that it is quite difficult, and we would have to move from the current voluntary system. To be fair, that system has worked well. Progress has already been made in reducing flaring. It is down by some 50% since 2018 and we can get the rest of it removed by 2030.

The question is: should that be accelerated? In fairness, I think that is what the noble Baroness, Lady Hayman, is putting to us today—that this amendment, if passed, would not affect the new developments that are already being planned, on the basis that there was zero routine flaring and venting, but would accelerate the timetable for the rest of the platforms. My question to the Minister concerns that timetable and speeding it up. Do he and the Government believe, and can they demonstrate, that the voluntary-based momentum that needs to accelerate —the industry recognises that it must accelerate in order to achieve the 2030 deadline—is better or worse than a slower, compliance-based mechanism, which would require a complete infrastructure from government to achieve the sort of timetable that is set out in this amendment? That is the real question. By the way, the amendment is not precise because it will depend on when the secondary legislation is introduced before Parliament, so it might be implemented quite close to the 2030s or in the late 2020s.

--- Later in debate ---

[Lord Kerr of Kinlochard (CB)]

I intervene briefly to express a little scepticism about Amendments 5 and 17. I declare an interest because I used to be deputy chairman of Shell for a time. I think the answer to the very fair question of the noble Lord, Lord Bruce, is that we cannot, unless we nationalise the companies or direct their sales, because they will sell at the market price. I do not think that the condition that Amendments 5 and 17 would impose will ever be met. We will never be able clearly to demonstrate that prices and the cost of living would be lower X many years out. First, one cannot be clear. It takes five, seven or eight years for a project to come into production and guessing prices and the cost of living that far ahead, as I saw at Shell, is not an exact science. It is difficult to do “clearly”—the wording in the amendment.

Secondly, I am not clear whether this third test is a cumulative condition, like the carbon intensity test and the net importer test. If it is cumulative, then no licenses will be issued at all, because that will never be able to be proved.

I am afraid that, for the same reasons, my scepticism also extends to the net importer test. I do not understand the Bill. We are setting out a perfectly reasonable set of propositions for a nationalised industry, but if you want the North Sea to be developed as it is now, or for the development to continue as it is now, run by commercial companies, then the commercial companies will sell at the world price. They will not allocate a little bit to you at a better price so that you can satisfy your tests; in particular, a cost of living test. It does not work like that. I am making everybody in the room angry, because I do not really agree with Amendments 5 and 17, and I do not actually agree with the Bill when it comes to the net importer test.

[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.