© Supplied by Harbour Energy There is no “material difference” between oil and gas imports and domestic North Sea production, the UK energy minister has said.
Appearing before the Scottish Affairs committee at Westminster, Michael Shanks was asked by Labour committee chair Patricia Ferguson whether he thought it was “necessary to reduce North Sea gas production in order to scale up clean energy”.
Shanks told the committee that “there’s a natural decline happening in oil and gas and that’s just a reality”.
“We will need oil and gas for many years to come and it’s an important part of our energy mix… but so too is our mission to move towards clean power by 2030,” Shanks said.
“The truth is that much of the gas that’s extracted from the North Sea is exported, and so what we’re trying to build towards is a stable power system that removes gas from the system.”
“It will still play a backup role… but the volatility in the global price of gas, whether it comes from the North Sea or anywhere else, is what many of our constitutents have been facing [through] the increased bills in the past few years.”
North Sea benefits to UK economy
Asked whether the UK economy would benefit from prioritising domestic production over imported oil and gas, Shanks said he did not “think it makes a material difference”.
“We don’t own what’s extracted from the North Sea, it’s owned by private companies who trade on an international commodity market and who trade based on what the international price, which is not set by Britain, is for anything they extract from the North Sea,” Shanks said.
“So although the receipts that come from offshore extraction obviously contributes significantly to the treasury, I don’t think it makes a material difference in that long-term trajectory.
“And the truth is we’ve been importing significant amounts for so long that our energy mix actually is a diverse mix of imported LNG and others.”
Shanks said for too long the UK has “buried our heads in the sand and said this transition isn’t happening while thousands of jobs have gone around us”.
“The transition is underway. It’s not something that is driven by government policy but by the geology of the North Sea,” he said.
North Sea jobs
Members of the committee questioned Shanks repeatedly on the impact of Labour’s energy policies, as the energy minister pushed back on claims the party has accelerated the decline of the offshore sector.
Shanks claimed that prior to Labour taking office last year, more than 70,000 jobs were lost from the oil and gas sector in the past 10 years.
“This isn’t something that suddenly started in July last year,” he said.
© Supplied by Cerulean Winds“What we have seen is a failure of the last 10 years to really grasp the opportunities of that transition.”
SNP MP Dave Doogan challenged Shanks on his comments that prioritising domestic production will not make a “material difference” to the UK economy.
Doogan pointed to the benefit of tax receipts to the exchequer, as well as the economic and taxation benefits from jobs in the oil and gas sector.
And with the UK already importing an increasing amount of its oil and gas demand, Doogan argued “there has to be an environmental benefit from producing it locally”.
Oil and gas production emissions
But Michael Brennan from the Department for Energy Security and Net Zero, appearing alongside Shanks, said determining the emissions impact of imports versus domestic production is a “very complicated calculation”.
While pointing to a study from the North Sea Transition Authority, which determined imported LNG has around four times the associated emissions compared to domestic gas, Brennan said the global picture is more complex.
© Supplied by Shutterstock“When you extrapolate that beyond just the domestic view, and you look at it globally, the Climate Change Committee have concluded that it’s not possible actually to establish the net impact of domestic UK production on global emissions,” Brennan said.
“And the reason that there’s not that direct connect is that it’s not clear that the demand in the UK, especially when we’re relatively low demand for fossil fuels as part of the global market, it’s not clear that if you turn down our production, it has any demonstrable impact on the overall global production of hydrocarbons.”
Brennan said there’s a “propensity to draw a straight line between if you produce more domestically there are lower emissions”.
“But actually, when you stand back the global scale, it’s very hard to prove that argument unfortunately,” he said.
Energy transition opportunities
On the question of jobs, Shanks said the Labour government is aiming to “move forward as quickly as possible” to redeploy the offshore workforce into emerging energy transition sectors such as offshore wind and carbon capture and storage (CCS).
“That’s where we get the benefits continuing, not just in a short-term industry that has been declining for many years,” he said.
He said while newspapers “are always full of announcements about job losses” for “obvious reasons”, there is rarely a focus on job creation in emerging industries.
“There is a piece of work for us to do around sharing the good news that comes from this [transition],” Shanks said.
“We need to make sure that the energy industry feels like a place where young people can grow up wanting to work in Aberdeen and the energy sector in the future.”
North Sea licenses and windfall tax
Shanks also reiterated that Labour would stick to its manifesto commitment not to issue new licences for new fields and instead focus on managing existing fields.
A consultation on the future of the North Sea set for publication later this year will outline the government’s stance in greater detail, Shanks said.
“But the fundamental position is that we don’t think that exploring new fields is going to produce any significant difference in the transition that’s already underway,” he said.
“In order for us to get maximum value from the North Sea in the future, we need to start managing the basin in a strategic and coherent way.
“And we don’t think that licensing is part of that picture.”
© Supplied by Repsol Sinopec ResouBut he added that there may be scope for “fringe cases” relating to production from “near-field work that for all intents and purposes you would perhaps consider was already related to a field that’s already extracting”.
On the windfall tax, Labour MP Elaine Stewart asked about Harbour Energy’s decision to cut 250 jobs from its Aberdeen office.
Harbour blamed its decision to cut jobs on the UK government’s “ongoing punitive fiscal position and a challenging regulatory environment”.
Shanks said it is for Harbour to “take account for their decision there,” but he added that there are a “multitude of factors” that North Sea operators consider in addition to taxation.
“There are long-term decisions that companies make around the future of where they see their business in the North Sea. They’re looking at the same data that we are looking at,” he said.
Great British Energy
Doogan also questioned the energy minister on the jobs impact of GB Energy since its establishment in Aberdeen.
Shanks said he is “incredibly proud” that the government had passed legislation to set up the publicly-owned company, and said GB Energy is now “ramping up its employment in Aberdeen”.
“It has to start somewhere,” he said.
“And look, I really do take issue with this idea, particularly from people who didn’t support it at all, that we shouldn’t do it because it’s too small at the moment.
“People opposed its existence to begin with. It’s an important tool that we’ve got. It has to start somewhere.
“And if we look around Europe in particular, many of our projects in this country are built by fantastic state-owned companies in the rest of Europe.
“This is normal in other countries and it’s right that we’ve got it in the UK as well.”
