Oil price volatility concern as North Sea job losses mount

The Herald Scotland

4 days ago

'I think it is true when the Prime Minister says energy security is national security,' he said, adding: 'Over 40% of our energy demand was imported last year and I think in an uncertain world, you know that's the wrong place to be.'
The reliance on imports leaves the UK vulnerable to a disruption to supplies, reckons Mr Whitehouse. He claims the country is depriving itself of huge amounts of economic value that are enjoyed instead by countries it buys oil and gas from. Imports may result in an increase in emissions compared to UK sources when related production and transport operations are taken into account.
'If we do it here in the UK that protects jobs, puts real value into our economy and we deliver that with a lower carbon footprint so I think the case for having home-grown oil and gas is compelling,' said Mr Whitehouse.
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The oil and gas industry veteran noted that an expert report for OEUK published in June found that up to 7.5 billion barrels of oil and gas could still be produced from UK waters. The figure is around 3.2 bn barrels higher than current government estimates.
OEUK has highlighted the fact that the Climate Change Committee, which advises the Government, has forecast that in a scenario where the UK meets all its climate targets on time homes and businesses will still use between 13 and 15 billion barrels of oil and gas.
The potential additional 3bn barrels production that OEUK thinks is possible could be worth £165 billion to the UK economy in total and support thousands of jobs.
Under Mr Whitehouse's leadership OEUK will focus much of its effort on campaigning for cuts in oil and gas taxes as the Government prepares to publish the results of a review of the fiscal regime.
North Sea firms complain the tax burden has increased significantly since the windfall tax was introduced by the former Conservative Government in 2022. The rate of the energy profits levy has been increased since then, most recently by the Labour Government in the Budget in October.
While the tax was imposed after oil and gas firms posted bumper profits, Mr Whitehouse claimed it has caused lots of damage.
He said one way of highlighting that would be that fact that in 2019 the former Oil and Gas Authority predicted that over 6bn barrels of oil and gas would be produced from the UK North Sea between 2025 and 2050, with over 10bn possible. That compares with the successor North Sea Transition Authority's forecast of around 3.5bn.
'The underlying geology in the North Sea hasn't changed but the environment and the uncertainty has and the windfall tax has played an important role in that, it is deterring investment' claimed Mr Whitehouse. 'As we look forward to the second half of the year we are seeing a rapid drop off in terms of rig activity in the North Sea.'
OEUK chief executive David Whitehouse claims oil and gas firms can play a key role in the development of renewables assets off Scotland (Image: OEUK)
The Government has come under pressure to bring forward the date for the ending of the windfall tax to 2026 from 2030. Chancellor Rachel Reeves gave no ground when she published the results of the key Comprehensive Spending Review in June.
However, Mr Whitehouse hopes that OEUK could still win concessions.
'The Treasury has some very thoughtful mechanisms which mean that in the event that prices spike the tax on the sector would increase,' he observed.
There are details to be considered but OEUK wants the successor regime to be implemented in 2026.
Mr Whitehouse is confident that the resulting boost to activity would allow the Government to recover more revenue than it lost as a result of easing the tax burden.
He noted: 'In a regime where you're paying high tax that is causing investment not to happen … that does reduce your economic growth actually, it also ultimately reduces your tax receipts.'
OEUK welcomed the results of the review of the field development consenting process the Government published this month – although energy minister Ed Miliband's plans to stop issuing exploration licences for new areas is a cause for concern.
The consenting review was launched after a Scottish court ruled the Conservative Government was wrong to approve plans for the controversial Rosebank development off Shetland - because the assessment process failed to take into account the emissions that would result from use of the oil concerned.
Under the Government's plans firms will be required to submit environmental impact assessments in respect of proposed field developments that do consider such emissions.
'We welcome that the guidance has come out, it is an important step to projects moving forward,' said Mr Whitehouse.
The regulatory change could have positive implications for the planned Rosebank, Jackdaw and Cambo developments, all of which are opposed by environmentalists.
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Mr Whitehouse hammered home claims that the UK needs to ensure that it has a strong oil and gas supply chain if it is to make the most of the potential of low carbon energy generation and carbon capture and storage technology to support the net zero drive.
Oil and gas firms have the expertise required to develop offshore facilities such as windfarms and some have shown they are willing to invest directly in developments.
OEUK's membership includes firms that are active in renewable energy generation, hydrogen production and carbon capture and storage. It evolved out of the former Oil and Gas UK.
'If we manage the opportunity right and in a pragmatic way, which is support for oil and gas while we still use it then we see significant opportunities, particularly floating wind, carbon capture,' Mr Whitehouse said.
'I think there's huge opportunities for Scotland the wider UK … not just storing emissions from UK industry but storing them from Europe.'
In June the UK Government confirmed it would provide £200m funding for the Acorn carbon capture and storage project, which will involve capturing industrial emissions and transporting them for storage in depleted North Sea reservoirs. It also announced £500m funding for UK hydrogen projects and a £1bn offshore wind supply chain initiative.
Mr Whitehouse said OEUK very much welcomed the announcements concerned, which should help to generate momentum in the low carbon sector.
However, noting that the number of jobs created in the sector so far has remained lower than expected, he cautioned: 'It is good to have ambition. It is good to set targets. But for those targets we need to make sure that they become real, that … people can feel that there are genuine delivery plans that sit underneath them.'
The prize could be huge if politicians and industry play their parts effectively. That will require people to recognise that the UK will need oil and gas and the related supply chain for years as it builds out the low carbon generating systems it is hoped will eventually meet its energy requirements.
Noting that 90,000 jobs are supported by the oil and gas sector, Mr Whitehouse appeared optimistic about the future despite the concern about the geopolitical outlook.
'I think over the coming decades, I would like to see that integrated energy sector significantly increasing the number of highly skilled, well-paid jobs,' he said. However, the prediction came with the caveat that 'it's that integration that I think is going to be the path to success'.