Introduction
Last week, there was an
Opposition Day on Tuesday 24th March and the
Conservatives took the opportunity to force a vote on the UK oil and gas
industry. Their motion called on the Government to
remove the Energy Profits Levy, end the ban on new oil and gas licences and
approve the Rosebank and Jackdaw fields to increase secure domestic energy
supply.
Parliament decided to put
Net Zero above the national interest and the motion was voted down by 297 votes to 108. Not a single
Labour, Liberal Democrat, Reform, Restore Britain or SNP MP voted in favour of
the motion. Time to explore why this was a catastrophic error and tantamount to
treason.
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Catalyst for the Oil
and Gas Motion
The UK’s energy policy has
been a disaster for at least two decades, but the catalyst for the Tories to
lay this motion was the disruption caused to global oil and gas supply caused
by the war in Iran.
As a reminder, in peaceful
times, about 20% of the world’s oil supply transits through the Strait of
Hormuz. Since the beginning of the war, traffic through the Strait has plunged by 95%. This disruption to supply has
caused energy prices to rise significantly. Using the start of February
as a baseline, Brent crude prices are up 45% to $96 per barrel on 25 March and
UK gas prices are up over 60% to 130p/therm although both prices have dropped a
little from their highs.
Impact of War in
Middle East
Supply of oil and gas is
likely to remain constrained and prices elevated for some time, even if there
is a peace deal because so much infrastructure has been damaged. For instance,
Qatar’s Ras Laffan Liquified Natural Gas (LNG) plant has been hit causing extensive damage that has
knocked out 17% of Qatar’s LNG export capacity and force majeure has been declared on some export
contracts. Repairs will take 3-5 years to complete. Bahrain has declared force
majeure after its Sitra oil refinery was attacked and Iraq has cut output from
its southern oil fields. Other oil and gas facilities have been hit in Saudi
Arabia, Kuwait and UAE.
The Gulf region is a major
global hub for nitrogen-based fertilisers. Qatar has halted production of urea and exports of have
been disrupted due to the closure of the Strait of Hormuz which could lead to a
global food crisis. Exports of Helium, critical for semi-conductor manufacture
have also been hit. The supply of petrochemicals like polyethylene and polypropylene
has been hit which will have downstream
impacts on the global plastics industry. The Gulf also accounts nearly a
quarter of global sulphur supplies. Sulphur is also used to make sulphuric
acid, a critical chemical in making phosphate fertiliser and in refining critical
metals like copper, nickel, cobalt and uranium. Aluminium production has also
been disrupted, particularly in Bahrain and Qatar, where Norsk Hydro has
declared for majeure.
The International Energy
Agency (IEA) has warned of the largest supply disruption in the history of
the global oil market. Sky News has warned the UK is facing the
biggest economic hit from the Iran war of any major country. Some impact is
already being felt as China has banned export of fuels like petrol,
diesel and aviation spirit, while the CEO of Shell has warned of fuel shortages in Europe as soon as next
month.
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UK Vulnerability
The UK is vulnerable to
events in the Middle East because our industry has been systematically degraded
over several decades by misguided governments. We no longer make ammonia, used
in downstream products like nitrate fertiliser. Jim Ratcliffe has warned that
our chemical and petrochemicals industries are on their knees because of high
energy prices and carbon taxes. The UK’s aluminium production has fallen from
over 300,000 tonnes in the early 2000’s to less than 50,000 tonnes.
Of course UK oil and gas
production is down too, forcing us to rely more on imports.
Labour Government
Response
Given that coal, oil and
gas provide nearly three quarters of the UK’s energy we might
hope that the Government would react decisively to secure energy supplies in
the face of such an energy supply shock.
But the actual response has
been feeble. To protect consumers, there is a new fuel price checking website,
called the Cheaper Fuel Finder to combat price gouging. Energy minister Michael
Shanks has announced the plug-in solar panels will be
available in supermarkets and new homes will be forced to have solar panels
and heat pumps installed. This might be termed the chocolate teapot response.
Despite the biggest ever
oil supply shock and rising energy import dependency, the Government has
not made any commitments to increase domestic hydrocarbon supply.
At Prime Minister’s questions, Keir Starmer
steadfastly refused to overrule Ed Miliband and fast track Jackdaw and Rosebank
into production.
The Government’s lack of
action flies in the face of the Tony Blair Institute, RenewableUK, Offshore Energies UK, Greg Jackson and even backbench Labour MP Henry Tufnell who have all called
for more drilling in the North Sea.
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Benefits of North Sea
Oil and Gas
There are many stories circulating effectively saying
that the North Sea is not worth bothering with because it is a
mature basin in decline.
However, the gas production
forecasts from the North Sea Transition Authority (NSTA) assume the current tax
and regulatory regime that is discouraging investment remains in place. It is
hardly surprising that production falls steeply when no new exploration
drilling is allowed. Incidentally, part of NSTA’s mission is to “accelerate the move to
net zero” so their pessimistic stance is unsurprising. Ed Conway from Sky has been effective in showing that if
we move to a more benign environment production would fall much more slowly.
This new scenario uses data
from Offshore Energies UK (OEUK) that assumes a more benign tax and regulatory
regime, but does not include potential gas production from onshore fracking.
OEUK has also produced analysis showing oil and gas reserves
and resources could almost triple from their low case to a risked 7.5 billion
barrels of oil equivalent (26.6bn boe, unrisked) with a major shift in
regulations and taxes.
More domestic oil and gas
production will deliver well paid jobs and tax revenue for the Exchequer. Lower
tax rates will likely deliver a higher overall tax take. Domestic production
will improve energy security through less reliance on imports and improve the
trade deficit. Increased gas production will also likely reduce prices because
it will displace expensive LNG imports. Ironically, domestic production will
also lead to lower emissions of greenhouse gases because the energy intensive
processes of cooling, liquefying and shipping LNG will be avoided.
Policy Response
In the light of the damage
being caused by Net Zero and the disruption in the Middle East, a more rational
policy response would include abolishing the windfall tax on UK oil and gas
production because the marginal tax rate of 78% is discouraging investment.
Capital allowances should also be restored. The regulations forcing developers
to calculate Scope 3 emissions and electrify offshore installations should also
be scrapped or reformed. Regulators like the NSTA should have their mission
amended to maximise production.
The government should also
end the ban on new exploration drilling and lift the moratorium on onshore
fracking. Carbon taxes should be abolished to bring down electricity prices and
lift the threat to our remaining oil refineries. The most expensive subsidies
for renewables, like the Renewables Obligation should also be abolished to
further reduce electricity prices and pave the way for tax cuts. More than half
the cost of petrol at the pump come from tax, so there should fuel duty should
be cut too. Many of these tax cuts could be funded by removing subsidies for
EVs, carbon capture, green hydrogen and heat pumps as well as the cuts to the
Renewables Obligation.
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Voting Record
The vote on the Conservative motion was useful to
flush out the enemies of national security and prosperity.
As might be expected, the
296 votes against the motion came from the Greens, Labour, Plaid Cymru and
Labour-adjacent independents. Nearly 300 MPs voting for energy insecurity and
industrial decline.
The members recording no
vote told their own story. Ed Davey, the Clown of Westminster and leader of the
Liberal Democrats, led his MPs to the fence where he parked his ample derriere
and rallied his colleagues to follow his determined indecision. Nine SNP MPs,
three of them in Aberdeen constituencies including their leader in Parliament
Stephen Flynn, could not bring themselves to register a vote. Aberdeen is losing 1,000 jobs per month and these MPs
could not be bothered to vote to save their city.
Fourteen Tories also
registered their indifference to their own party’s motion with four of them,
Karen Bradley, Aphra Brandreth, Caroline Dineage and Louie French being members
of the green blob organisation, the Conservative Environment Network. At least as
troubling was the refusal of Reform and Restore Britain MPs to vote for the Tory
motion. Both parties are opposed to Net Zero and want to exploit our energy treasure. Refusing to vote
for a motion they agree with smacks of petty infighting, not the principled
leadership we need.
Interestingly, 118 Labour
members abstained too, perhaps indicating that support for Ed Miliband is
starting to crumble. North Sea drilling supporter Henry Tufnell also abstained,
unable to bring himself to stick to his principles and vote for the Tory motion.
Of the 108 MPs voting for
the motion, 98 were Tories backed up by Ulster Unionists and a few
independents. This is a welcome volte face from the party that brought us Net
Zero in the first place.
Conclusions
The UK is already suffering
from high energy prices and deindustrialisation. The war in Iran has caused the
largest oil-supply shock in history. As a result, energy prices have risen and
the supply chains of many materials that are critical to modern economies have
been disrupted. Labour’s response has been feeble.
The Tory motion to support
more drilling in the North Sea to enhance our energy security was well-timed
and has flushed out those who would rather blindly follow Net Zero ideology
than act in the best interests of the country. It is almost as worrying that
parties who agree with the new Tory policy of abandoning Net Zero could not
bring themselves to vote for the motion.
We used to have a word for
betraying your own country. In the limit, stupidity is indistinguishable from
stupidity. But motives matter less than outcomes. Failing to act to secure
domestic energy supplies is at best wilful negligence and at worst tantamount
to treason. The end of this Parliament cannot come soon enough.
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