UK energy chiefs urge Liz Truss to put her faith in gas

Industry body makes case for more UK production and says fossil fuels can help with transition to renewables

Offshore Energies UK said that even sticking to the net-zero road map, oil and gas will remain the largest fuels for at least another decade. AFP

UK energy chiefs have urged newly elected British Prime Minister Liz Truss to get foursquare behind oil and gas to ensure the country can contend with straitening international supplies and soaring prices.

The clarion call will alarm environmentalists and directly controverts the International Energy Agency's 2021 determination that exploitation and development of new oil and gasfields must end.

A report by Offshore Energies UK on energy security suggests that the war in Ukraine and its accompanying global energy crisis have rendered the agency's stance obsolete, demonstrating how dependent Britain is on fossil fuels to meet its energy needs.

The report said that even sticking to the net-zero road map, oil and gas will remain the most widely used fuels for at least another decade.

If this finding is accepted, then at a time of international supply crisis, it suggests the solution is to boost domestic oil and gas production — an ambition that will require serious investment and the creation of conditions in the UK that bring it about, the report said.

Demonstrating the magnitude of the task, in 2021, UK oil and gas production was only enough to meet 53 per cent of its needs, with gas at 38 per cent and oil at 82 per cent. The inadequacy is the fulfilment of a wider trend in which domestic production has fallen by two thirds in 20 years.

However the trend isn't inexorable, and in the first half of this year, the industry has increased gas production by 26 per cent, the report said.

Whether oil and gas bigwigs are the best gatekeepers of the UK's energy transition will divide opinion, but there is little debate over the extent of the supply-side crisis, which in July drove UK inflation to a 40-year-high of 10.1 per cent.

In 2022 to date, gas prices have averaged at 200p/th, with winter prices already trading at a whopping 700 p/th. On Monday, the European TTF benchmark stood at 2019 p/th.

And while Ms Truss is widely predicted to freeze consumer prices at their current level, this level has still risen 80 per cent this year.

In recognition of the deleterious paradigm, Offshore Energies UK has formulated a series practical measures it believes will help alleviate the crisis.

Offshore Energy UK's crisis road map

1. Reliable, responsible partners

Support UK oil and gas, which is reliable and produced cleanly, and announce the Climate Compatibility Checkpoint in Autumn 2022 to enable new licences to be awarded as soon as possible

2. Support consumers

Speed up electrification across society — in areas such as transport and heating — in step with offshore wind expansion, and split the market into two price bands: one reflecting the lower cost of electricity produced by renewables, and the other the cost of power produced by oil and gas.

3. Reduce reliance on imports

Boost existing supplies of UK gas by updating gas quality standards, confirm the 2022 licensing round and speed up approvals, committing to ending the windfall tax by 2025.

4. Use UK gas to fuel clean energy

Recognise the importance of gas as a transition fuel in the new Energy Act while slashing times for offshore wind projects and accelerating UK hydrogen production with clarity on investment models and regulations

Competing visions for UK energy

Commenting on the report, acting Offshore Energies UK chief Mike Tholen said: “Having a sustainable, secure, and affordable supply of energy has never been more important, and the UK’s offshore energy sector continues to step up and play a vital role in ensuring this.”

A report by green financial analyst firm TransitionZero in May spelt out the benefits of moving from coal to renewables.

“Despite some regional variation, our analysis shows a clear deflationary trend in the cost of switching from coal to clean electricity,” TransitionZero co-founder Matt Gray said at the time.

“Independent of Russia’s invasion of Ukraine, this trend will accelerate, presenting governments with an economic opportunity to protect electricity consumers from continued fossil fuel volatility.”

Both environmentalists and gas chiefs want more offshore wind capcity, but disagree on how to get there. AP

And on Wednesday, the Climate Change Committee and the National Infrastructure Commission wrote to Ms Truss to cast further doubt on the suitability of gas for the task at hand, setting out the positive case for action on energy efficiency, low-carbon heat and renewables in the face of the current cost-of-living crisis.

“The UK is facing a set of grim records: high energy prices, extreme summer temperatures, a historic drought and surging inflation,” the letter from the two committees stated.

“These are indicative of the long-term challenges of climate change, and the immediate economic challenges which could see up to three quarters of UK households threatened by fuel poverty.

“Addressing our dependency on fossil energy offers us the best way out of these crises. Decisive government action in the near term can deliver lasting benefits to the UK’s climate and energy security.

“In addition to any new package of support for consumers this winter, we urge you to follow the principles laid out in the British Energy Security Strategy and the Net Zero Strategy.

“The best policies for the consumer are those that support lasting energy security and a low carbon, low-cost energy system. The independent analysis of our respective organisations is that this will deliver a long-term return on investment and set the UK on a path to prosperity.

“The UK cannot address this crisis solely by increasing its production of natural gas. Greater domestic production of fossil fuels may improve energy security, particularly this winter. But our gas reserves — offshore or from shale — are too small to impact meaningfully the prices faced by UK consumers.”

Gaseous boost to UK economy

While the oil and gas industry will always find it hard to win the environmental argument, regardless of the sheep's clothes in which the argument is packaged, one area where it is on far stronger ground is the economy.

The industry supports 214,000 jobs across the UK and since 1970 has contributed £400bn to the UK Treasury in taxes.

Offshore Energies UK sees this contribution as inviolable, hence why transitioning the offshore sector is integral to its model. Scratch oil and gas production and a seismic economic black hole would be left behind.

“Not only has our sector been working hard to provide energy security to the country, but it also continues to bring a wide array of economic benefits, contributing more than £13.8bn in oil and gas production taxes from April this year to next May,” said Mr Tholen.

“Committed as it is to the energy transition and delivering net zero, the sector has cut emissions, which are one fifth down from 2018 and is showing how its vital skills and expertise can drive the low-carbon energy and emissions solutions needed for the future.

“We’re seeing that in action in the North Sea, through the start-up of power generation at Seagreen and the beginning of construction of the Dogger Bank project — two of the world’s largest offshore wind farms which are both being led by companies with an oil and gas production heritage.”

Given the low tax, market-based economy enshrined by Ms Truss, it is likely Offshore Energies UK's low-tax, high-investment vision of the energy market will be one that curries favour.