The King’s Speech delivered on 7 November 2023 set out the Government’s plans to introduce legislation to strengthen the UK’s energy security and notes that this will “reduce reliance on volatile international energy markets and hostile foreign regimes." This refers to the new Offshore Petroleum Licensing Bill (the Bill) which is currently awaiting a date to be set for the second reading in the House of Commons and which places the North Sea Transition Authority (NSTA) (formerly the Oil and Gas Authority) under a new duty to run an annual process to invite applications for new offshore oil production licences.
- The purpose of the Bill and the new duty imposed on the NSTA is to “provide certainty to the [oil and gas] industry and potential investors” that licensing of new offshore petroleum resources will continue. This new duty will be triggered only where two tests are met, termed the “carbon intensity test” and the “net importer test”
- The “carbon intensity test” will be met if the average carbon intensity of producing domestic gas is lower than the average carbon intensity of imported LNG (liquified natural gas). The test measures domestic gas production against imported LNG only (the text of the proposed legislation does not appear to consider natural gas imported via pipelines). This potential oversight in the Bill means that the “carbon intensity test” will always be met because LNG goes through additional processes before transport. LNG is cooled to very low temperatures and compressed before it can be shipped and this additional processing means it will always be more carbon intensive at the point of production than gas extracted directly from the UK’s offshore gas fields, which is transported by pipeline.
- It is worth bearing in mind that the vast majority of carbon is released when the extracted or imported gas is used by an end consumer and it is easy to overstate the importance of the “carbon intensity test” which only considers the carbon intensity of production. The difference in the total carbon intensity of someone in the UK using domestic gas versus imported LNG is quite minor compared to the difference between using gas versus energy derived from a renewable source.
- The “net importer test” looks at the scale of the UK’s oil and gas production over the next 15 years and compares this to the UK’s demand for oil and gas over the same 15-year period. This test is met if, during the assessment period, the UK is projected to remain a net importer for both oil and gas (i.e., demand for oil and gas in the UK continues to outstrip domestic supply).
- The Bill is described as aiming to “help the country to transition to net zero by 2050, without adding undue burdens on households,” however, the Climate Change Committee (the independent statutory body established under the Climate Change Act 2008) is sceptical and has expressed concerns that the expansion of fossil fuel production is not in line with Net Zero and confidence in the UK meeting its medium-term targets has decreased in the last year.
- The King’s speech continued with an expression of the government’s commitment to “seek to attract record-breaking investment in renewable energy sources” and reform grid connections to improve the UK’s electricity transmission infrastructure.
- The government has also announced that it will be pushing back the ban on the sale of new petrol and diesel cars from 2030 to 2035 and has watered down the phasing-out of new gas boilers which will likely lead to a further lessening of confidence of the Climate Change Committee and many others in the UK’s ability to meet the Net Zero targets that have been set.
- The King’s speech touched on the commitments to Net Zero and to reducing the reliance on the international energy markets, but it is not clear that either of these goals will be achievable through the award of further licences to extract oil and gas from the declining reserves in the North Sea.
