A potential rift has opened up within the UK government between the energy transition and the funds needed to kickstart a crucial delayed project.

A UK energy minister has signalled a potential rift in the Cabinet over key projects in the North Sea sector’s transition away from fossil fuels that could have their funding cut by the Chancellor next month.

Michael Shanks told The Scotman the oil and gas industry must “start planning for the future” and that the UK needs to start “building up” carbon capture technology along with low-carbon hydrogen production.

He also insisted the transition must take place while “recognising that the long-term future is not oil and gas”.

There is a drive to reskill North Sea oil and gas workers to undertake renewables work.

Mr Shanks suggested the UK government should “move forward as quickly as possible” with its plans to give the industry “confidence” it will play a key role over the coming decades.

The body representing the North Sea industry has said new technology such as carbon capture could “unlock billions of pounds of new investment, support thousands of new jobs and UK energy security”, insisting it is “critical” that funding is promised by the Chancellor next month.

Mr Shanks’ comments come amid speculation Chancellor Rachel Reeves is poised to cut funding from carbon capture projects in next month’s spending review - a move that would be likely to cause anger in Ed Miliband’s net zero and energy security department.

Carbon capture, utilisation and storage (CCUS) projects are believed to be facing the threat of Treasury cuts after warnings from MPs the “high risk” policy should be re-evaluated to ensure it is “affordable for taxpayers and consumers”.

The Acorn carbon capture project at St Fergus in Aberdeenshire has not been fully funded by the UK government, despite years of promises under both the Conservatives and now Labour. The project would allow fossil fuels to continue to be used, but in theory keep carbon emissions from being released into the atmosphere and stored in the seabed instead.

Critics say carbon capture and storage technology, yet to be done at commercial scale, simply allows the burning of fossil fuels for longer. But independent advisers the Climate Change Committee has warned neither the UK or Scotland can meet its climate targets without using the technology.

Amid reports the Chancellor could use next month’s spending review to wield the axe on spending for carbon capture projects, Mr Shanks stated carbon capture and hydrogen technologies must be ramped up as Scotland and the UK seek to cut emissions.

The potential stand-off adds to mixed signals from Labour, after Scottish Labour leader Anas Sarwar suggested the UK should be “maximising our existing resources as part of a managed transition”.

Ed Miliband and Rachel Reeves are poised to clash over the tension between the energy transition and economic growth | Darren Staples/PA Wire

The Labour government has upset many in the North Sea industry after pledging to end new offshore oil and gas licences and has extended Westminster's controversial energy profits levy.

The Chancellor is perceived to have a softer stance on a total ban on new licences and has suggested that two controversial developments which need to apply for permits after court rulings, will definitely go ahead - despite Mr Shanks and others warning a decision is still to be made.

Referring to the Rosebank and Jackdaw projects, Ms Reeves insisted that “go ahead they will”, adding that “North Sea oil and gas is going to be really important to the UK economy for many, many years to come”.

Asked about the two applications, Mr Shanks said: “Rosebank and Jackdaw are issues of consent, not about licensing and are decisions the government will take in due course.”

He added: “We said in our manifesto we wouldn’t issue new licences. Sites that have licences for the lifespan of those projects will be supported. That’s the position we consulted on in the future of North Sea energy consultation.

“We asked within that, questions about what the future of North Sea licensing could look like around some of the different models that are available.

“We are now looking through a considerable number of consultation responses to come to a really serious decision on all of the feedback that we got.”

Mr Shanks has suggested that the decline of the North Sea oil and gas industry is inevitable, even without intervention from politicians.

Energy Minister Michael Shanks with Cerulean Winds' alliance partners on a tour of the Port of Ardersier near Inverness hearing about the Aspen floating windfarm which will create over 1,000 jobs. | Contributed

He said: “This is about saying even if we don’t recognise there is a transition already under way, the reality is the geology of the North Sea means it is a declining and super-mature basin.

“We have to start planning for the future and that does mean building up CCUS, hydrogen, renewables, bringing opportunities to Aberdeen and the wider North East - but recognising that the long-term future is not oil and gas, although it will play a critical part.”

“The transition in the North Sea didn’t arrive with a Labour government last July - it’s been under way for many, many years”, Mr Shanks added.

“But the previous government didn’t put in place the investment in the jobs for the future. We are determined to do that. That’s why we consulted on our ‘future of the North Sea’ plan. That’s why we will move forward as quickly as possible to implement it to give confidence that oil and gas will play a critical role for decades to come.”

Asked about the impact of Aberdeen-based Harbour Energy announcing this month plans to shed 250 jobs, Mr Shanks said: “I think there are a range of factors as to why companies have made commercial decisions - some of which is about the oil price globally, some of which is about companies’ own investment decisions.

“The broader picture here is that for there to be a just transition, we do have to plan for it.”

Mike Tholen, sustainability and policy director at Offshore Energies UK, insisted that “the offshore energy industry is an essential partner for the UK’s future industrial and economic ambitions”, stressing that “there is increasing integration between the North Sea oil, gas and wind sectors, alongside hydrogen and carbon capture”.

He added: “The UK has the largest carbon storage potential in Europe and is uniquely positioned to develop a world-leading capability which will accelerate the path to net zero. It is critical that there is a firm commitment to support carbon capture in the forthcoming spending review.

“We must make the most of all our domestic resources to deliver a successful energy future that supports jobs and economic value. That means the build out of offshore wind, carbon capture and storage, and hydrogen – alongside the continued production of domestic oil and gas to meet the country’s needs.

“If we get this right we can unlock billions of pounds of new investment, support thousands of new jobs and UK energy security.”

SNP Acting Net Zero and Energy Secretary, Gillian Martin, warned resources in the North Sea are running out and the sector must “pivot to secure future energy opportunities in Scotland for decades and into future generations”.

Acting Energy Secretary Gillian Martin during a visit to drone manufacturer Flowcopter in Loanhead, to mark the publication of the Scottish Government's Green Industrial Strategy | Andrew Milligan/PA Wire

She added that the UK government “should be considering the earliest possible end date” for the energy profits levy, in order to “avoid more decisions such as that taken by Harbour Energy”.

Ms Martin warned that the Acorn carbon capture project “has been completely abandoned for the pork barrel politics of the newly elected MPs in the red wall”.

Scottish Conservative shadow net zero and energy secretary Douglas Lumsden said: “These remarks once again confirm the hostility towards Scotland’s oil and gas sector from senior Labour figures.

Conservative MSP Douglas Lumsden has submitted nearly 1,000 questions, at a cost of about £100,000, on subjects including the provenance of beeswax used for the Great Seal of Scotland | supplied

“Those in the North East are appalled by their reckless policies and will be angered by Michael Shanks failing to recognise his party’s policies are a huge factor behind the recent job losses at Harbour Energy.

“Having met with the company this week, it is clear there won’t be a transition if the oil and gas industry is prematurely destroyed.

“If Labour don’t change their approach then tens of thousands of highly-skilled workers will end up on the scrapheap and our economy be hit with the devastating consequences.”

A UK Government spokesperson said: “We are delivering first of a kind carbon capture projects in the UK, supporting thousands of jobs across the country, reigniting industrial heartlands and tackling the climate crisis.

“The Energy Secretary has made clear that we recognise the value of the Acorn project to Scotland and our wider clean power plan. Carbon capture requires significant resources, and it is right that it is considered within the Spending Review.

“Alongside headquartering Great British Energy in Aberdeen, we are working with industry on a plan for the next generation of good jobs in Scotland in hydrogen, offshore wind and ports, as part of the government’s clean energy superpower mission.”

Exclusive:Labour minister warns North Sea to 'plan for future' without oil and gas amid Government carbon capture rift

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