Labour’s Oil and Gas Policy Needs to Keep People and Innovation at its Heart

Kier Starmer is Prime Minister, and the Labour Party have formed a government via landslide victory. Included within their manifesto, Labour introduced their ‘Green Prosperity Plan’, designed to accelerate Britain’s progress towards net zero. Within this, Labour have pledged to ban all new North Sea oil and gas extraction licenses, a proposal shunned by unions as placing jobs and our national security at risk.

Their proposal would not result in the immediate halt of North Sea oil and gas extraction, with firms able to continue exploiting sites with existing permission. Critics of Labour’s proposal fear the return of a Thatcherite decimation of yet another valuable British industry, somewhat reminiscent of the coal mine closures of the 1980s, which after being poorly managed left mining communities around the country in a state of long-term decline, the scars of which are still visible.

In an attempt to mollify the industry, Kier Starmer has rightfully come out to state that oil and gas will still play a valuable part in the UK’s energy mix for many decades to come, a statement which any informed and rational individual not super-gluing themselves to roads will understand.

Now, on the surface it might seem contradictory for Kier Starmer to want to ban all new oil and gas licenses, whilst also emphasising the importance that these two home-grown fossil fuels will have on our country’s energy mix. That’s what we will explore here.

What is Labour’s Plan?

Labour’s manifesto suggests that they will not revoke existing licenses and will sweat the oil and gas fields already under license for the rest of their life span, which they say will support jobs in an industry that employs 120,000 people in the UK. A return to a more centrist Labour Party is most welcome, and this political swing was the key driver behind their landslide general election victory. Labour argues that issuing new licenses to explore fields in the North Sea would not reduce our energy bills, not improve our energy security, and would worsen the UK’s position as a global leader on climate action.

Labour’s plans are in stark contrast with the previous Conservative government’s policy, who rested firmly on the belief that issuing new North Sea licenses would create and protect jobs, reduce our emissions, and lead to greater energy independence. As a result, hundreds of new oil and gas licenses were issued over the Conservative’s 14-year tenure, a policy that confirmed in some people’s eyes the unfortunate perception that the government was rolling back from climate action.

So, the question remains, what is the correct approach, and is banning new North Sea oil and gas licenses a sensible policy proposal?

Jobs

Industry leaders have hit back saying that Labour’s plans make future investment decisions impossible, something that will undoubtedly impact the job security of the 120,000 people who work in our domestic oil and gas sector. The UK consumes twice as much oil and gas as it produces, with the deficit being supplemented by imports.

The Conservatives were right to suggest that using our domestic North Sea reserves is less carbon intensive, with liquified natural gas (LNG) imports producing roughly four times the emissions of UK produced LNG. Despite our reliance on oil and gas falling marginally over recent years, it still plays an essential role in our energy mix. Erecting any barriers to North Sea investment could therefore increase our reliance on imports and support jobs overseas.

Anything that inhibits investment and exploration in the North Sea, such as the plan to ban new licenses could reduce domestic tax revenues, something that Labour themselves planned to increase. Labour have pledged to extend the Conservative’s ‘windfall tax’ placed on oil and gas firms to 2029, and increase it by 3%, taking their headline rate of tax to a dizzying 78%. A likely policy trade-off of Labour’s policy could be that tax revenues from oil and gas giants actually decrease, especially now the oil price shock caused by Russia’s invasion of Ukraine has loosened its grip on our wallets.

Labour plan to break the proverbial fall of our domestic oil and gas industry and safeguard future jobs by setting up ‘Great British Energy’, a publicly owned investment company that would create ‘green jobs’ focussed on renewable energy technologies, carbon capture and storage, and hydrogen.

Kier Starmer has acknowledged the long-term importance of oil and gas in the UK’s energy mix; two fossil fuels that will continue to play an important role well into the 2050s. Renewable energy now meets over 40% of the UK’s electricity demand, however with other industries considered, renewable energy’s influence is still only modest.

We believe that Labour’s plans could put British jobs at risk. Safeguarding ‘greener jobs’ for the future is a fine idea, however, does not account for the skills gap that the industry is already facing, and the time that such radical transitions take. Industries such as construction, shipping, aviation and steel are all still heavily reliant on hydrocarbons, and an overnight switch to lower carbon alternatives is not a realistic aspiration.

The time and investment needed to upskill tens of thousands of people would be a significant undertaking and needs to be approached in a steady and managed way, something that Kier Starmer has acknowledged in his manifesto. If we want to avoid the failings of the transition away from coal, effective policy should place people and innovation at its heart.

Despite the apparent inconsistencies in Labour’s plan and the challenge that increasing renewable energy penetration poses, the UK is leading the world in renewable energy innovation and deployment, especially in offshore wind.

Energy Security

The previous Conservative government alleged that North Sea exploration would improve our energy security. This is a spurious claim. The previous energy minister, Claire Coutinho repeated her claims that the North Sea is the key to unlocking greater energy independence. This is not based on sound evidence.

While the UK is heavily reliant on oil and gas imports, there is no guarantee that additional domestic production would supplement UK supply. Oil and gas are extracted by private companies, who sell it in open international markets, not necessarily to the UK, and around 80% of our North Sea oil is exported for refining and use elsewhere in the world. Gas on the other hand is predominately kept in house, piped to winter storge facilities in the UK; perhaps what the previous Conservative government rested their claims on.

The vast majority of UK oil and gas imports come from Norway, a politically stable ally of the UK. Since the Russian invasion of Ukraine, and the subsequent suffocating sanctions placed on Russia, Russian imports have ceased, with supply bolstered from other nations. On this point, Labour is correct to say that increasing domestic production would not improve our energy security.

Household Energy Bills

The Conservatives stated that increasing domestic supply of oil and gas would cut energy bills. Another patchy claim not supported by much evidence. The bills that come through our letter boxes every month are determined by global energy prices, not the amount of UK supply.

The volume of oil and gas that the UK produces are so minute in comparison with the rest of the world that no amount of North Sea production will turn the dial on international prices. The international free-market approach that governs the trade of oil and gas cares not for the UK’s negligible input. Issuing new licenses and ramping up North Sea production would not bring down your monthly energy bill.

What could reduce our bills however is the continued investment and deployment of low-cost renewable energy and other sustainable technologies. Time will tell, but this is something that the investment potential of Labour’s ‘Great British Energy’ could help achieve.

Renewal Energy’s View

Whatever your views on Kier Starmer, he has managed to drag his party back towards the centre and convince the country to give him a significant majority in parliament. Under the Conservatives, renewable energy electricity generation went from just 7% in 2010 to over 40% last year, world leading statistics.

The Conservatives are a divided party, and in our view are the cause of people’s lack of faith in politics and politicians. Their claims about North Sea oil and gas improving our energy security and reducing bills are not a reflection of the truth. Their focus on creating and protecting jobs is legitimate, and Labour’s plans to ban all new North Sea licenses would discourage investment and risk the jobs of 120,000 people if not properly managed.

‘Great British Energy’ has the potential to invigorate the renewables industry, hopefully providing world leading investment (as a percentage of GDP) for our sustainable industries. The transition to renewable energy is the most significant journey this country will embark on since the industrial revolution, and if properly managed in a steady and sensible transition, has the potential to create hundreds of thousands of jobs and generate billions in revenue.

International optics are important, and we do support claims that issuing new oil and gas licenses may damage the UK’s reputation on climate action on the global stage, and reinforce a legacy of carbon lock-in. Despite this, oil and gas will continue to play a significant role in the functioning of our country for many decades to come.

Exhausting current oil and gas fields, without exploring new ones will result in more costly and carbon intensive extraction practices being used but will not diminish the UK’s thirst for these fossil fuels. It will increase our reliance on imports and support jobs overseas, putting many in Scotland and the Northeast of England in a precarious position.

The Conservative narrative played into what they thought people wanted to hear, not necessarily what the likely outcome was. Labour’s proposals are incomplete, and we would like to see a more developed plan around a managed energy transition.

In our view, despite what we believe to be well-intentioned Labour policies, the UK government should continue issuing oil and gas licenses in the North Sea.

Supporting UK jobs is crucial, especially in an industry that will remain significant for decades to come. The production of North Sea LNG is less carbon intensive than imports, something that will only increase should North Sea production reduce.