Why Swinney's shift on oil and gas matters in the real world

Could a new dawn be breaking on the North Sea oil and gas industry?

John Swinney’s softened stance on North Sea oil and gas is politically significant, but

more importantly it is a recognition of reality.

For too long, the debate on the future of the North Sea has been framed too

narrowly. What households pay for energy is plainly part of that picture, but so too

are jobs, economic value, climate impacts and, increasingly, energy security.

Oil and gas is an industry which measures investment over years and decades, not

news cycles or even parliamentary terms, and it needs long-term stability to deliver

that investment. The industry has been rocked by near-constant changes to the tax

regime and wider UK policy in recent years.

That is why the First Minister’s shift matters. This week, he said climate compatibility

tests on new oil and gas developments should also take account of energy security,

and that if domestic production is less carbon intensive than imports, it should be

preferred. That is a marked change in emphasis from the SNP’s earlier presumption

against future exploration, and from the tone struck by the party in recent years. 

Allister Thomas, Head of Energy at Aberdeen-based True North Advisors | contributed

Britain still relies on fossil fuels for more than 70% of its energy demand and imports

account for more than 40% of demand. Cleaner power is growing strongly, and we

should support that to its fullest extent. But in the energy system we actually have,

rather than the one some politicians talk about as if it has already arrived, oil and gas

still matter. That point has been sharpened by the crisis in the Middle East.

Concerns over diesel and jet fuel supplies have intensified, prices have risen and

governments elsewhere have already begun looking at how to protect consumers

and conserve fuel. In Britain, that matters more when domestic refining capacity is

weaker than it was even a year ago.

It comes amid reports the Jackdaw gas field off Aberdeen is expected to be

approved by the UK Government. Jackdaw has capacity to meet around 6% of UK

gas demand, and can be piped directly into the UK system within months. In a

country still heavily reliant on gas, that is not a small point. Measured by emissions

intensity, Jackdaw is also around 10 times cleaner than imported LNG.

Rosebank, as an oil project, has different logistics, but it is part of the same wider

argument. The project is expected to support around 1,600 jobs at peak and deliver

£6.3bn of investment in UK-based businesses. With Grangemouth no longer refining

crude, much of that oil would move through the north-west Europe system and return

as refined products. Britain already operates within that system of energy security, so

producing more from our own waters still strengthens it.

READ MORE: Reality check for Scotland’s offshore wind ambitions amid China setback

And we can produce more: The UK will remain an importer whatever happens

because the basin is mature - but it is not exhausted. The NSTA regulator says

nearly three billion barrels of reserves remain, alongside more than six billion barrels

of contingent resources. That matters for energy security, tax revenue and the supply

chain jobs needed for the wider transition.

None of this is an argument against offshore wind. Quite the opposite. Scotland

should be doubling down on wind, grids, ports and industrial delivery. But it is wrong

to imagine that shutting down domestic oil and gas faster than demand falls is a

serious energy policy. Domestic production does not insulate Britain from global

prices, but producing more of what we still use at home, rather than importing more

of it, still means improved control over security of supply and less exposure to

disruption. Crucially, a government with more revenue from oil and gas has

significantly more flexibility to respond to global price shocks and the cost-of-living

crisis.

The better case - and the ones our politicians are belatedly edging towards - is for a

managed transition. Oil and gas and offshore wind are both part of the pragmatic

approach the UK will need for years to come.

Allister Thomas is the Head of Energy and True North Advisors and is based in Aberdeen