The North Sea is a crucial zone for oil and gas production globally, providing a significant source of hydrocarbons. Nevertheless, the extraction techniques employed in this region pose numerous risks, such as oil spills and greenhouse gas emissions from burning fossil fuels. In the 1960s, when the area was discovered, the UK government established a licensing system to regulate exploration and production operations in the region. These licences have remained in effect, allowing companies to bid for exploration and production rights in specific parts of the North Sea.
The UK has since set ambitious climate targets to achieve net-zero emissions by generating all electricity from "clean" sources by 2035. In the past two years, the UK has made progress towards these targets, with only 40.8% of electricity generation coming from fossil fuels in 2022 and 56.2% from low-carbon sources such as renewables and nuclear.
A windfall tax was introduced last year, increasing the total tax on oil and gas producers to 75%. This has caused some producers to cut their investments and avoid the ongoing regional licensing round for drilling. However, the government recently tweaked the tax, stating it would be scrapped if prices fall to normal levels for a sustained period.
While there are restrictions on oil imports due to Vladimir Putin's reign of terror on Ukraine, Sunak has claimed that the UK needs to reduce its reliance on energy imports. The British government plans to grant at least a hundred new licences for oil and gas exploration and production in the North Sea as part of Prime Minister Rishi Sunak's commitment to take "pragmatic and proportionate" action against global warming.
Who is advocating for the changes?
The move is supported by the Scottish Conservatives, who see it as backing Scottish oil and gas and the drive towards net zero emissions.
Energy companies like Shell and BP firmly support the government's decision to grant new oil and gas licences in the North Sea. They argue that domestic fossil fuel production is essential for ensuring energy security and reducing the carbon footprint of importing liquefied natural gas (LNG). Both companies have asserted that the oil and gas extracted from the North Sea can be produced with lower emissions than imported from overseas, aligning with climate goals while meeting the country's energy demands. Shell, in particular, has been a proponent of carbon capture and storage (CCS) technologies.
In the case of BP, the oil giant has been a major player in North Sea oil drilling since the early days of the industry's development. BP was among the first companies to venture into offshore oil exploration and production in the North Sea after discovering significant regional oil reserves. As companies have become more eco-conscious, BP has set out its five planet aims: enhance biodiversity, water management, nature-based solutions that reduce or remove carbon emissions, circularity, and sustainable purchasing.
However, such claims remain shrouded by greenwashing claims.
Keeping business in the family
Recently, it came to light that Infosys, a company owned by Rishi Sunak's father-in-law, had signed a deal worth a billion dollars with BP. Interestingly, this deal was made only two months before the prime minister granted oil and gas extraction licences in the North Sea. The agreement with BP is believed to be the second largest in the history of the Indian IT company.
Despite Infosys claiming to prioritise improving operational efficiency on their website, they still conduct business with some of the largest producers of greenhouse gas emissions worldwide. One such partner is Shell, the major British oil and gas company. Their partnership was taken to a new level last year with the introduction of the Shell Inventory Optimiser. Furthermore, Shell has recently become a member of Sunak's business council.
The mixing of family business and politics also extends to Sunak's wife. Akshata Murty holds a minority stake of approximately £690 million in the tech firm, and reports from last year suggest that she received dividend payments of around £11.5 million.
This adds more complexity to an already delicate situation.
Who is against the licensing?
Environmentalists and climate activists have been very vocal in opposing the government's approval of new oil and gas licences in the North Sea.
According to the International Energy Agency (IEA), there should be no new oil exploitation to limit global temperature rises to 1.5°C above pre-industrial levels. The agency has stressed that continued reliance on fossil fuels, even from domestic sources, hinders the necessary transformation to combat the climate crisis effectively.
Friends of the Earth has also denounced the government's move as 'greenwashing'. The environmental campaigning group has suggested Sunak's energy security drive should focus on energy efficiency and the UK's vast home-grown renewable resources rather than championing "more costly and dirty fossil fuels". They have also called out the Prime Minister's 'green gloss' claims of including carbon capture and storage in his manifesto.
The current licensing agreement places a marker between the government and the Labour Party. The left-wing party has suggested halting all new domestic oil and gas drilling to achieve zero-carbon electricity by 2030. If elected, Labour does not intend to stop offshore extraction that has already been approved. Still, they believe a clear deadline is required to facilitate a smoother transition to a green economy. The Liberal Democrats have also advocated for retaining the windfall tax on oil and gas companies, despite the recent decline in energy prices.
Is a successful green transition possible?
As the nation faces the critical choice between fossil fuels and renewable energy, the decisions made today will shape the trajectory of the UK's energy landscape and its impact on the planet for future generations.
The government believes that granting licences will improve British energy independence and strengthen the economy. However, it remains to be seen whether this strategy is practical and suitable, especially considering the pressing issue of the impending climate crisis.
