Offshore Petroleum Licensing Bill

Peter Aldous Excerpts

2nd reading
Monday 22nd January 2024 Commons Chamber

[Peter Aldous (Waveney) (Con)]

Energy production, either offshore in the form of oil and gas production and offshore wind, or on the coast in the form of nuclear, is of specific interest to the Waveney constituency that I represent. The oil and gas industry has been a significant employer locally for nearly 60 years, one of the largest clusters of offshore windfarms in the world is located off the East Anglian coast, and Sizewell C will bring significant job-creation opportunities to the area.

To realise the full potential of the opportunities, both nationally and locally, we need the right policy, fiscal and regulatory frameworks that satisfy the three criteria of energy security, affordability and decarbonisation. It is also necessary to provide investors with the confidence and certainty to invest in the UK. It should be borne in mind that the market for energy capital is global, footloose and highly competitive.

It is against that backdrop that we should judge the Bill. There are reasons for supporting it, but we must not lose sight of the need for long-term stability and consistency in energy policy that is required to attract the enormous amount of private investment that we need to modernise and decarbonise our energy system and to make it more secure and resilient.

I chair the all-party parliamentary group for the British offshore oil and gas industry, and I highlight three factors that should be borne in mind in setting energy policy. First, we are moving away from businesses, wherever they are in the supply chain, that specialise in a particular sector, whether that is oil and gas, offshore wind, carbon capture or hydrogen. Such businesses are increasingly becoming all-energy companies that work in a range of different sectors.

Secondly, as I have mentioned, many such businesses are globally footloose and will operate anywhere in the world. If we have policy, regulatory and fiscal regimes that are continuously flip-flopping, they will go elsewhere.

Thirdly, it should be emphasised that the vast majority of these companies—I highlight those operating in East Anglia—are committed to net zero. They regard it as both a moral and a legal obligation from which we should not be distracted.

As I have mentioned, there are reasons to support the Bill and I shall briefly highlight them. First, our energy policy is determined by the trinity of energy security, affordability and decarbonisation. Recent geopolitical events, in particular the Russian invasion of Ukraine and the conflict in the middle east, have created major concerns with regard to security of supply and unpredictability of price. We have felt the backlash of the latter very harshly in the past two years and its impact has hit hardest the poorest and most vulnerable. It is against that backdrop that it is sensible for the UK to be more energy independent and to use our own energy supplies—whether that is offshore wind, nuclear or oil and gas.

Secondly, we need to reduce our reliance on oil and gas, and, indeed, we have made good progress in doing so, as the UK has decreased oil production by 66% since 2003. At the turn of the century, we were producing 4.5 million barrels of oil equivalent per day. Today, that figure is below 1.5 million and still falling. However, we still rely on oil and gas for much of our energy needs and shall continue to do so, albeit on a significantly declining trajectory in the coming decades. It is in that context that it is logical to use our own oil and gas. It should be pointed out, as others have done, that the carbon footprint of domestic gas production is around a quarter of that associated with imported and energy-intensive liquefied natural gas.

Thirdly, at a time of global economic uncertainty as well as geopolitical instability, we need to have in mind the huge benefits that the oil and gas industry brings to our country. Domestic oil and gas production provides many jobs and adds approximately £16 billion to the UK economy each year, while tax receipts are significant—£33.7 billion since 2010 and an estimated £50 billion over the next five years.

Fourthly, as I have mentioned, today’s energy companies operate across a variety of sectors and there is a risk that, if we close down the North sea too quickly, we will imperil investment in new low-carbon sectors. Many companies investing in nascent opportunities require a cash flow from a stable and predictable oil and gas business. Moreover, freedom to explore can be a major driver for investment on the UK continental shelf not only in oilfields and gasfields, but in carbon capture and hydrogen production. Closing the door on exploration reduces the option value of the UK as a destination for overall investment.

Finally, it should be pointed out that most of the new licences that would be granted are near fields adjoining existing ones. That means that there would be a lower incremental emission intensity as production will take place using existing facilities.

It is important to emphasise that the Bill is not a panacea for the future of the North sea. There is other work that the Government must carry out alongside it. One of the most notable achievements of the Conservative Government in recent years was the creation in 2016 of the Oil and Gas Authority, which now operates as the North Sea Transition Authority. It is a regulatory authority that has achieved a great deal and that has also recognised the vital importance of net zero.

The NSTA’s great advantage over its predecessor, which was embedded in the Department of Energy and Climate Change, is its independence of Government. There is a worry that the Bill undermines that independence, and I hope that, in his summing up, my right hon. Friend the Minister will take on board and allay that concern. The Government should also consider providing the NSTA with an enhanced role. As the transition has become centre stage to the authority’s work, the authority has taken on additional regulatory responsibilities—for carbon capture, usage and storage and hydrogen. Consideration should be given to adding to that the oversight of the emerging geothermal sector, an increased focus on the offshore energy supply chain and maximising the future use by low-carbon technologies of the infrastructure that has been laid down in the North sea over the past 60 years.

We are at times in danger of talking glibly about a just transition and the creation of new jobs. We can help to achieve that in a meaningful way by focusing more strategically on skills and infrastructure. I am mindful that the regulatory space on the UK continental shelf is crowded. As well as the NSTA, other organisations, such as the Marine Management Organisation and the Crown Estate, are carrying out important work. We must ensure that all that work is properly co-ordinated, is effective in its precautionary objectives, and is not so overly bureaucratic as to deter investment.

I mentioned that the majority of businesses working in the North sea are committed to the transition. Yes, they want the Government to be realistic and pragmatic about the future of the domestic oil and gas industry, but they are also ambitious. They want to be part of an industry that is in the vanguard of the transition from fossil fuels to renewables—global leaders on the road to net zero. That should mean, for example, a more ambitious climate compatibility checkpoint, and bringing forward the ban on routine venting and flaring.

The Bill has merit, but it needs to be accompanied by other measures, some of which I have outlined, to maximise the enormous amount of private investment that is required to decarbonise. We also need to dispel any false notion among investors about the UK’s commitment to delivering on our net zero targets. As the Government have stated, there is a need for pragmatism, proportionality and realism, but that must be accompanied by ambition, consistency and clarity.