The North Sea’s oil and gas fields look set to become a political battleground for the next seven months.
The prime minister today announced new measures he hopes will bolster the industry for decades to come, in a move designed to woo Scottish voters ahead of the independence referendum next September. But beneath the politicking is the wider issue of what the UK plans to do with its remaining fossil fuels as it tries to decarbonise the energy sector.
Keeping the industry alive
Last year, the government commissioned former oil company chairman Sir Ian Wood to write a report on the future of North Sea oil and gas. The final draft, released today, estimates there could be up to 24 billion barrels of oil still waiting to be tapped. But it’s getting ever-harder to access, and that’s where the UK government comes in.
Wood’s report says the North Sea has already provided 42 billion barrels of oil and gas. But much of this was extracted from wells which are becoming increasingly depleted. In order to get to the rest, companies are going to have to drill fresh wells in geologically trickier spots.
Wood says that for that to happen there needs to be better coordination among fossil fuel companies and the government. The report estimates that if all its recommendations are implemented quickly, three to four billion barrels of oil and gas could be extracted over the next 20 years, worth Â£200 billion to the UK’s economy.
The prime minister today said the government would be “fast-tracking” Wood’s proposals in a show of support for the industry.
Such pledges sit uncomfortably alongside both the Scottish and UK governments’ climate change policies, however.
The Scottish government has pledged to get the equivalent of 100 per cent of Scotland’s electricity demand from renewable sources by 2020. The UK government has an EU-enforced obligation to get 15 per cent of the UK’s energy from renewable sources by 2020, while the Climate Change Act requires the UK to cut greenhouse gas emissions by 80 per cent by 2050. Scotland has the same emissions reduction target enshrined in the Climate Change (Scotland) Act of 2009.
The UK government’s official climate change advisor, the Committee on Climate Change, says that if the UK is going to stay on its recomended emissions reduction path, it needs to reduce gas demand by around 60 per cent and oil demand by around 50 per cent by 2030. That means ramping up low carbon technologies alongside North Sea oil and gas.
With that in mind, the UK’s energy and climate change secretary, Ed Davey, also confirmed the government would provide funding for a new carbon capture and storage (CCS) plant in Aberdeenshire. Without CCS, the UK’s ability to burn oil and gas and keep to its emissions pledges is seriously curtailed.
Assuming the CCS technology works, Scotland’s first minister, Alex Salmond, maintains that Scotland can ramp up its renewable energy generation at the same time as exploring for more North Sea fossil fuels. Doing so would allow Scotland to export excess electricity generated from both sources to the UK and abroad.
Impact of independence
The relationship between policymakers’ desire to keep the North Sea oil and gas industry running and existing climate goals is likely to become even more complex if Scotland becomes independent.
If it were to happen, the Scottish government’s would have to shoulder the large cost of developing CCS technology that is currently funded by the UK government.
Furthermore, the Scottish government would need to find a way to protect its economy from the volatile tax income the North Sea fossil fuel industry provides. Last year, tax revenues from the industry fell by 40 per cent due to declining production and volatile oil prices, according to Wood’s report.
Cameron says the UK economy’s “broad shoulders” were able to cope with such volatility, implying that such a plummet would have floored an independent Scotland and taken the industry with it.
Scottish independence could also make life tricky for the rest of the UK, however.
The Department of Energy and Climate Change’s latest statistics show Scotland generated about 35 per cent of the UK’s renewable electricity. It also has the joint largest amount of installed wind power (44 per cent, the same as England), and has 89 per cent of the UK’s hydro power.
But Scotland only consumes about 10 per cent of the UK’s energy. So if Scotland were to become independent, it could take large chunks of the UK’s renewable energy resources with it.
That could leave the rest of the UK could struggling to meet its climate goals – unless it bought lots of renewable electricity back off Scotland, that is.
Much of today’s coverage has focused on what the new plans mean for relations between the UK government and Scottish voters. But deciding what to do with the North Sea oil and gas reserves is important regardless of whether Scotland votes for independence.
Today’s announcement makes it clear that the UK government is as committed as their Scottish counterparts to extracting every last drop of fuel from the North Sea. While that could be good for the governments’ coffers, it may mean greatly increased emissions unless policymakers take action.
As such, working out a way to make North Sea oil and gas extraction compatible with wider climate change goals will remain the central task of whoever is in charge north of the border come September 19th.