Drill, baby, drill - but does it make sense to hand out, every year, new North Sea extraction licences for oil and gas as the UK government has promised? Aren’t we supposed to be ending our reliance on fossil fuels? Or is it essential for energy security to harvest what we have on our doorstep? And is the cost of a more rapid transition to renewable sources of energy too high for hard-pressed families struggling to pay their bills? Phil and Roger quiz Gavin Bridge, Professor of Economic Geography at the University of Durham, and Fellow of the Durham Energy Institute, on the costs and benefits of more North Sea extraction.
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[00:00:00] The Y-curve with Phil Dobbie and Roger Hearing
[00:00:04] Where do we get our energy?
[00:00:06] Increasingly from the wind, from waves, from hot rocks, from what's renewable.
[00:00:10] That's what you'd think, but the UK government now says there will be annual contracts to drill for oil and gas in the North Sea.
[00:00:17] And globally, we're using more fossil fuels than ever before.
[00:00:20] The commitments to net zero are being watered down.
[00:00:23] It's too difficult and burdensome, we're told, lot of stuff from Norway. Doesn't sound like it's going to work either, but in terms of his general position, we can't go as fast towards net zeros, perhaps we wanted to, because the cost for individual families and people trying to afford to run cars or their heating is rather heavy. And I mean, in that sense, I think you may have an appeal to the voters on this one.
[00:01:42] Yeah, so is a misinformed voter, maybe.
[00:01:45] Well, maybe.
[00:01:46] Because he's really going to bring the prices down.
[00:01:47] So there's a lot to talk about anyway. extracts oil and the onshore where the UK consumes oil is a really interesting question because I think in most people's minds we will know we've got North Sea oil, we've had North Sea oil from the mid 1970s and the reasonable assumption would be that we produce oil offshore and we consume it onshore. And what's actually quite surprising to most people is that most of the oil that is produced in the North Sea in the UK were set up in a period before North Sea oil. So most of those refineries, they've obviously been expanded and updated over time, but they date from the 1950s and the 1960s when the UK saw a really significant increase in demand for fuels. This was the beginning of the jet age. Most people beginning to own cars, drive around,
[00:04:22] motorways being built. So basically demand for petroleum international markets. And then you've got refineries in the UK that are trying to meet UK demand. And a lot of UK demand is for what's called the middle distillates. So that would be things like diesel, for example. And to produce diesel, you need a blend of different crudes. And
[00:05:42] broadly speaking, the sort of crudes you benefit for the UK economy, but it would be wrong to say that we actually use what's coming out of there in any direct sense. And should we be targeting being a net exporter again, or is that just a pipe dream, if you'll excuse the pun? I think those prospects are really limited by the nature of the North Sea as a basin.
[00:07:02] It's widely regarded as a mature and declining costs and in the UK as a mature and declining base and has compared certainly to the Middle East significantly higher production costs. So if we offered more licenses, who'd want them? Well, exactly, because companies, big companies are not going to grab it if the upstream cost is as high as they are.
[00:08:22] Yeah, so we've been doing some work, some of them are backed by private equity. And others are state owned firms, not UK state owned firms, but state owned firms from outside the UK. But it's still worth their while they're clearly
[00:09:44] making an economic judgment. You think with these licenses, the annual round, the 33rd licensing round, has taken over a year from the opening of that round to licenses being issued. So in practice, it takes a year to see this process through. So actually, the concrete consequence of annualizing it in terms of an increase in uptake,
[00:11:04] I think that's really unlikely to exist. And then once the same level, who can come into a basin and they find value for their shareholders in the smaller reserves that are left. Right. So we're talking about small amounts of energy being produced then in terms of the total supply in the world. This is just a mere blip.
[00:12:23] We haven't really mentioned, we mentioned the gas element. You mentioned the gas briefly there.
[00:13:25] saw an increase of gas demand in Europe, particularly because of the cutoff of Russian supplies. The UK has been acting as a kind of a bridgehead, importing LNG and then exporting that gas
[00:13:31] through the pipelines into Europe.
[00:13:32] So, and there's no price advantage. Again, it would just be the, I mean, the fact that
[00:13:36] it comes from the North Sea and it comes in and we use it. Is there a price advantage
[00:13:42] to UK consumers or again, is it, you. So we improve energy efficiency and shift to renewables. That kind of brings us to the point where we're saying, okay, we can see some economic advantage to the continued prospecting for oil and gas, nothing major, but it's in terms
[00:15:02] of perhaps tax pay. I think that's key here. We're talking about-
[00:15:05] We get a bit of extra taxes all the way. And important to say, there are really significant exemptions that are written into the windfall tax energy profits levy. That mean that for many companies is that no new. No new. I'm looking at an IEA report, they're forecasting that right up to 2050, the world is going
[00:17:43] to stick at using around 100 million barrels a day. So that would be legal rules, if you like, on what on what supply can be. They would be effectively reduced how much you can get out of the ground kind of thing. Well, it was it would be would be first of all, would in terms of how much more oil and gas will be produced in the North Sea is not about licensing, it's about the approval process of areas that are already licensed.
[00:20:20] Right.
[00:20:21] But we are a big player in this though, aren't we?
[00:20:24] I mean, obviously we're not producing as much. in terms of production and in terms of consumption too. But if you look on a European scale, then with the second largest oil producer in the European space after Norway, the UK's role in the oil and gas sector way outstrips the significance of its offshore production
[00:21:42] in terms of London's role as a center for raising oil and gas finance globally
[00:21:45] as a place for do to climate leadership, the Climate Change Act, the rapid fall in emissions over time. Those are all significant
[00:23:04] things that do give the UK people, which in the end, Gavin, is what the politicians, you see, the politicians are responsible to. I think the key thing there is that if you're concerned about affordability, which we should be, the best solution to dealing with exposure to volatile and
[00:24:24] particularly high prices is to move away from reliance on oil and gas.
[00:25:23] because it was too expensive to maintain without government support. And now I think the government is talking about maybe helping them a little bit,
[00:25:27] and they're reopening it, but like 2% of the original gas storage,
[00:25:30] and they're worried that the government's not going to keep their word on it.
[00:25:33] So isn't that balancing out of demand and supply with greater storage,
[00:25:38] that would be a more sensible move in the short term, wouldn't it,
[00:25:40] rather than opening up new gas storage?
[00:25:42] The energy security was.
[00:25:43] I think the storage question is unfortunately not reliance on a volatile commodity, which in this case is gas. But yeah, people will say, well, wind is volatile in the sense when the wind doesn't blow, the turbines don't move and we don't get the supplies of energy we need. A lot of these renewable resources are good, but they're not reliable, at least not yet.
[00:27:01] That's the quote. They're reliable in storage, give you, is the way that you shift your electricity supply towards renewables. So what you're saying is that the ambitious target of net zero, the idea of moving much faster towards that, which effectively Rishi Sunak has kind of dumped now.
[00:28:20] And for example, with cars, you know,
[00:28:22] the requirement for cars to be electric
[00:28:25] in a much earlier point.
[00:28:27] You're saying that his claim that that is pretty much Zunac has given us the two main reasons why he wanted to open up new fields in the North Sea. One was for energy security and I think you said a lot of it's coming from Norway, we get stuff from the United States as well. Pretty comprehensive international trade. Yeah, exactly. We're part of an international market and we buy it where it's available from so that doesn't apply and then the other one is that yes it's going to bring down costs
[00:29:41] and it's not because it's an international marketplace. So that's in an area where there's already infrastructure, there's already production, and really what you're doing is you're just reaching a little bit further out. So three to four years. But if you're talking about a major oil field, that's probably gonna be somewhere between five to 10 years. So if you're from issuing a license to actually seeing some production,
[00:31:01] that's going to be a significant time delay in that.
[00:31:05] So you're not gonna see any result from this quickly. and investments in, particularly when it comes to road transport, in a reducing car dependence. So that's things like public transport. It's about the underpinning investments that enable people to move around without being dependent on individual automobility. Well, you mean like a high speed round network up and down the country, that sort of thing?
[00:32:21] I mean, things that are much more mundane than that.
[00:32:23] That's cruel.
[00:32:24] That's cruel.
[00:32:25] Gavin's in Durham.
[00:32:26] It's very cruel to mention Northshaft.
[00:32:27] Well, it was never going to Durham anyway, was it? tram networks, train networks, all those things that mean that people's making their own transport choices are less dependent on owning and using a car. Mason- So are we then saying that out of everything that Rishi Sunak has said, the reasoning, which we've been through a couple of times now, he seems to be wrong on all of them. So is that
[00:33:43] because he doesn't understand it? He's been badly informed? And to try and make a set of arguments, you've rehearsed them admirably of what licensing mics do. I think on each of those grounds, affordability, energy security and climate, the link between offshore licensing and delivering those things is very, very weak and can be
[00:35:01] argued against quite clearly. So I think an orderly transition and a rapid transition, what you're doing is you're pushing right to the margins,
[00:36:23] if you like, and then the inevitable reckoning that that is needed to address both affordability and climate change. It does feel, doesn't it? Like you've got your foot on the accelerator as you approach a brick wall. Not a good position to be in. Gavin, I think we've buried the Rishi Sunakat's case quite comprehensive. And Kia Stama, there's your answer for the next election. We are not a political pushing where we are.
[00:37:41] You haven't asked about that because I. So yeah, what about the tax thresholds which are in person? I mean there's a lot of illogic going on there as well as in the US. But anyway, we'll see. And we're just a year of course from a rather different financial statement that tanked
[00:39:03] the economy if you remember.
[00:39:04] Just a year and a bit.