The Uncertain Future Of UK Oil And Gas

Authored by Felicity Bradstock via OilPrice.com,

• Labour is raising taxes and environmental standards on North Sea oil and gas while refusing to issue new licences, but insists hydrocarbons will remain part of the UK’s energy mix.

• Wood Mackenzie research suggests up to 14 billion barrels of recoverable reserves may remain, far higher than regulator estimates, fuelling debate over future drilling.

• The government is pushing for a just transition toward renewables while the Conservatives promise to remove net-zero requirements and maximise North Sea extraction.

Since the Labour Party came into office in the U.K. last year, many have wondered if oil and gas drilling will continue or whether we will witness an all-out shift to renewable energy. Prime Minister Kier Starmer has introduced stricter taxes on fossil fuel companies since coming into power, but has also said that oil and gas will continue as part of the energy mix for as long as it makes sense. So, as the investor environment in the U.K. North Seas becomes ever murkier, what can we expect?

In June, the U.K. government introduced stricter environmental regulations for fossil fuel companies with projects in the North Sea. Oil and gas firms must now account for the environmental impact of emissions from using or burning the fuels extracted. This follows a decision by a Scottish court earlier in the year, deeming the approval of Shell’s Jackdaw and Equinor and Ithaca Energy’s Rosebank unlawful, meaning they required reassessment by the government.

While existing oil and gas projects can continue in the North Sea, albeit with companies paying higher taxes, the government has said it would not issue any new oil and gas licences, as it invests in a shift to green. This marks a distinct move away from the energy policy of the previous Conservative government, which strongly backed U.K. oil and gas operations. Oil and gas companies operating in the North Sea are taxed at around 78 percent, including the Energy Profits Levy introduced in 2022.

During his recent visit to the U.K., United States President Donald Trump discussed the country’s oil and gas potential. Trump said, “You have a great asset here, and we spoke about it: it’s called the North Sea.”

He added, “The North Sea oil is phenomenal… I want this country to do well, and you have great assets that you’re going to start using, I believe, under this Prime Minister,” addressing Starmer.

He said that his pro-fossil fuel agenda in the U.S. had helped drive down fuel prices and slowed inflation – even though fuel prices have actually risen since Trump came to office.

In response, Starmer said that the Labour government plans to maintain a pragmatic approach to the country’s future energy mix, continuing to use North Sea oil and gas as required. He also emphasised the importance of reducing energy costs for consumers. Starmer said, “The mix will include oil and gas for many years to come from the North Sea – we’ve been clear about that for some time. But we also need to mix that with renewables, and it’s the mix that’s really important.”

However, some believe that the government should be supporting U.K. oil and gas more strongly, as the North Sea still shows significant potential. The research company Wood Mackenzie recently estimated that there could be up to 14 billion barrels worth of recoverable oil and gas in existing North Sea fields, which is three times bigger than the four billion barrels estimated to remain by the U.K. regulator, the North Sea Transition Authority (NSTA). The analysis was AI-powered and assessed the “recovery rates” – the proportion of oil and gas that can be viably extracted from the fields.

The report stated, “If UK fields were able to match recovery factors from analogous global fields, an additional 9 percent could be recovered. If best-in-class recovery factors were matched, an additional 18 percent of recovery could be added… These scenarios would potentially add seven and 14 billion barrels of additional production, respectively, over the lives of the 100 largest fields.”

In contrast to the Labour government, the Conservative opposition recently said that it would remove all net-zero requirements on oil and gas companies drilling in the North Sea if elected. The party leader, Kemi Badenoch, said the Party has a policy of “maximising extraction” to get “all our oil and gas out of the North Sea”. This policy is aimed at driving down consumer energy bills. However, previous failures from the former Conservative government to reduce household energy costs have made many wary of the Party’s promises.

The current U.K. government has introduced an array of energy policies and financial incentives in recent months to support a green transition and aims to achieve the net-zero target by 2050, which was written into law by then-Conservative leader Theresa May in 2019. The government believes that diversifying the energy mix will not only strengthen long-term energy security but will also, ultimately, drive down energy bills.

The focus for many now is a just transition. Many in the oil and gas industry are concerned about what a sudden withdrawal from the North Sea will mean for workers and communities in the region. The government now has the potential to use the new investor interest in the green energy sector to support a just transition and ensure people do not get left behind.