North Sea oil and gas industry in crisis over tax, project approvals
Investors await approvals for Rosebank oil project, new nuclear plant
Policy uncertainties drag on UK carbon, power prices
UK Prime Minister Rishi Sunak has appointed a new Secretary of State for Energy Security and Net Zero, Claire Coutinho, as the government gears up for election battles over support for North Sea oil and gas, electricity costs, renewables, and nuclear power.
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Taking over the role from Grant Shapps, who becomes Secretary of State for Defence, Coutinho vowed to “work with the prime minister to safeguard our energy security, reduce bills for families, and build cleaner, cheaper, homegrown energy,” in a comment on X, formerly known as Twitter.
Previously minister for children, families and wellbeing, Coutinho’s appointment has come amid a crisis of confidence in the upstream oil and gas sector after new taxes that have dented investment and drilling in the North Sea and, in turn, contributed to a plunge in oil production.
Simultaneously, government opponents are urging a faster phase-out of new oil and gas developments, with the Labour Party vowing to honor existing government regulatory approvals, but to put a halt to new license issuance.
A UK general election is due to be held by Jan. 24, 2025, with many polls and analysts predicting a change of government and Labour victory.
David Whitehouse, CEO of industry group Offshore Energies UK, described the new appointment as “a crucial role in a vital department, particularly at this time where security of supply and delivering meaningful action on the transition are at the forefront of energy policy.”
North Sea grades Forties and Brent still contribute to the Dated Brent benchmark, published by Platts, part of S&P Global Commodity Insights. Dated Brent was assessed by Platts at $86.10/b on Aug. 30, up 23 cents/b on the day.
Pressures to phase out oil and gas comes as the government has vowed the UK will achieve net zero emissions by 2050, with a number of interim targets along the way, but the country still derives 75% of its primary energy needs from oil and gas.
The major 300 million barrel Rosebank oil project is viewed as a bellwether for the sector, with Norway’s Equinor, a vital provider of oil, gas and renewables to the UK, insisting the project is of crucial importance.
Internationally, Coutinho will be promoting UK energy transition and technology efforts at the COP28 summit to be held in Dubai Nov. 30 to Dec. 12.
She will also be trying to foster overseas ties in the face of curtailed Russian oil and gas supply, including a collapse in Russian diesel imports. One sensitive agenda item is a planned visit by Saudi Crown Prince Mohammed bin Salman, whose country lies at the heart of the OPEC+ supply group.
Nuclear decision
Other challenges facing the new Secretary include delivering as promised a final investment decision on a large nuclear power project — expected to be Sizewell C in Suffolk — before the end of the current parliament and completing a controversial review into electricity market functioning.
Coutinho will also be under pressure to deliver near-term revisions to the current Contracts for Difference mechanism if bidder interest begins to fall away in the face of rising costs and inflexible bid price ceilings.
Results of the latest, fifth allocation round were due by Sept. 8. The mechanism is charged with delivering on the UK’s ambitious 50-GW by 2030 offshore wind target, up from 13.66 GW today.
“We need urgent intervention from the new Secretary of State to re-establish the UK as the best destination for international investment in renewables,” said sector association RenewableUK’s CEO Dan McGrail.
Carbon price-slump
In the wake of the Russia-Ukraine war the government has come under criticism for not doing enough to spur clean energy investment, which has been reflected in a sharp price slump observed in the country’s carbon prices.
Carbon prices under the UK Emissions Trading System hit record lows Aug. 10, dragged down by meager demand and concerns over the government’s climate commitments. Platts assessed UK Allowances at GBP47.21/mtCO2e ($60/mtCO2e) on Aug. 30, up from GBP39.76//mtCO2e seen Aug. 10, according to S&P Global Commodity Insights data.
Analysts at S&P Global also said the recent slump was due to considerable uncertainty for investors in the UK energy sector, and underlying doubts around political direction.
“The government has shown signs of wavering over the perceived short- term costs of the UK’s net zero targets, and this has been a factor in the steep discount in UK carbon allowances, which has weighed on domestic power prices,” they said in a recent note.
Carbon price worries are “really hampering good green investment. It is making the whole thing slow down, which is not good,” Piers Forster, interim chair of the UK’s influential Climate Change Committee told S&P Global Commodity Insights in a recent interview.
In a recent report, the Climate Change Committee said the government needed to nearly quadruple the rate of non-power sector emissions reductions if it is to meet its 2030 goal of at least a 68% fall in greenhouse gas emissions from 1990 levels.
Other UK climate-related targets, many of them contentious, include the phase-out by 2030 of sales of new fossil fuel vehicles, decarbonization of the power system by 2035, installation of 600,000 heat pumps per year by 2028, deployment at scale of hydrogen and, most recently, funding of up to GBP20 billion for carbon capture and storage.