North Sea oil and gas sector is holding its breath as it awaits answers

The North Sea oil and gas sector is holding its breath for answers to questions which will be critical not just to the future of the industry, but also to the role it can play in supporting UK economic growth, energy security, and in the transition to net zero.

First, operators and the supply chain await the UK government’s response to the “Building the North Sea’s Energy Future” consultation which is hoped will provide a pragmatic outcome to licensing that allows timely access to acreage.

Second, as the industry and regulators develop a detailed approach to the requirements of the Finch case on the inclusion of Scope 3 emissions data in Environmental Statements, Rosebank and Jackdaw are with the Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) for approval.

North Sea oil and gas promotes energy security and support hundreds of thousands of jobs (Picture: stock.adobe.com)

Third, the outcome of “Oil and Gas Price Mechanism” consultation seeks to formulate a predictable fiscal response to future oil and gas price shocks.

The Energy Profits Levy (EPL), introduced in response to perceived “windfall profits” following Russia’s invasion of Ukraine, is scheduled to end no later than 2030 – so a fit-for-purpose fiscal regime which caters for those “shocks” but provides certainty under normal price conditions needs to be in place by then.

The EPL itself is an arguably unprecedented tax, one which continues to cast a shadow over North Sea activity – and the Chancellor has the opportunity to remedy that in next week’s Budget.

But given the UK’s legal commitment to reach net zero by 2050, surely we should scale down our domestic oil and gas industry and put our efforts into rapidly growing the renewable sector, especially solar and offshore wind? The reality is that we need both.

Chris Sawyer, Partner and energy sector specialist at Pinsent Masons

Not only does the oil and gas sector promote energy security, support hundreds of thousands of jobs, and enhance value generation, but it is less carbon intensive than importing LNG by tanker.

If operators revive cancelled or delayed projects, and green-light new prospects, it is the North Sea supply chain who will deliver them – the same supply chain that will be needed to support non-oil and gas projects in support of the energy transition, whether offshore wind, CCUS or hydrogen.

Offshore Energies UK says that without change the nation risks losing up to 1,000 jobs a month, billions in investment, and critical supply chain capability essential for the UK’s energy security and transition.

There are signs of positivity as seen in recent comments made by Chancellor Rachel Reeves, and Prime Minster Keir Starmer, but how does this square with official UK Government policy, which is “not to issue any new licences to explore new fields”?

The industry is offering a possible solution, namely, to permit infrastructure-led drilling around existing fields and the development of previously discovered fields to support existing hubs and pipeline systems.

Importantly, UK oil and gas operations would continue and it’s possible to envisage an accelerated consenting system to give operators an opportunity to quickly develop those existing hubs.

So the question remains – instead of continuing to hold its breath, will the UKCS be able to breathe a sigh of relief?

Chris Sawyer, Partner and energy sector specialist at Pinsent Masons