Will the North Sea oil and gas industry be Labour's next U-turn?

The Guardian

5 hours ago

It was inevitable that Nigel Farage would take Reform UK's campaign tour to Aberdeen. On a visit to the capital of the UK's oil and gas industry on Monday he welcomed a defecting Aberdeen Conservative councillor, the 13th defection to his party's ranks in Scotland to date.
Reform is hoping to make political hay from the discontent surrounding the government's North Sea policies, the demise of the oil and gas basin and the vast workforce that depends on it. The populist party has vowed to reverse the government's ban on fresh North Sea oil and gas drilling as a 'day one' priority if elected to power in 2029.
Farage's naked targeting of the Granite City and of net zero – which he has described as 'lunacy' and the 'next Brexit' – has some in Westminster and the energy industry asking what would once have been unthinkable: will Labour be forced to water down or even U-turn on its North Sea pledges?
The Labour government swept to power last summer with a manifesto pledge to end new North Sea oil and gas projects and make Britain a clean energy superpower. But in less than a year the government has bent to the backlash against some of its most high-profile policies on benefits and winter fuel allowances, stoking speculation that its stance on the North Sea might be the next position to crumble.
Industry sources believe the government may be poised to give the green light to new North Sea projects from this autumn. The Guardian understands that senior government advisers have told North Sea investors that new drilling could still move ahead despite the election promise, provided the projects are close to existing pipeline infrastructure and do not extend into 'greenfield' areas.
One energy investor said government advisers in the Treasury and No 10 had 'quite openly' signalled that the door would be left open for new oil and gas projects to proceed despite the government's climate commitments. 'Myself and a number of colleagues have been told that the government is moving towards the idea of allowing new licences,' the source said.
However, the claims are at odds with the green agenda set out by Ed Miliband, the secretary of state at the Department for Energy Security and Net Zero (DESNZ), who has previously described plans to develop the Jackdaw and Rosebank oilfields in the North Sea as 'an act of climate vandalism'.
Those two oilfields, which are caught in a long-running legal battle over their emissions, will be a critical test of how Labour's desperation to counter the rise of Reform rubs up against its green principles.
Cutting emissions has strong support in the UK, with YouGov polling in March showing 61% of adults support or strongly support the government's target of reducing emissions to net zero by 2050. About 24% oppose or strongly oppose the policy.
But with domestically produced oil and gas being replaced with imports from Qatar and the US, sources believe that the Treasury is anxious to allow projects to move ahead to protect the more than 200,000 jobs that rely on the North Sea sector, and the billions in forecast tax revenues the industry generates for the exchequer.
'Within the Treasury there is a desire to interpret the manifesto commitment loosely,' a second industry source said. 'If there is an existing licence related to a field which means it might not be considered a 'greenfield' site then perhaps an expansion of that area could be acceptable.'
The North Sea contributes £25bn in value to the UK economy each year, according to the trade group Offshore Energies UK, which is more than five times the contribution of the UK steel industry and twice the contribution of the UK car industry.
'I suspect there will be some difficult internal rows about what counts as a 'new licence' between DESNZ and the Treasury - but I suspect that ultimately the Treasury will win this battle, with support from No 10,' the source added.
Labour's manifesto offers some room for manoeuvre: it promised that the party would not 'issue new licences to explore new fields', but would also not revoke existing North Sea licences granted by the previous government.
This means that controversial North Sea oil and gas projects at Rosebank, Jackdaw and Cambo – which were given licences by the previous government – could in theory be granted final consent to move ahead without breaching the manifesto promise.
Oil companies which hope to drill new wells within their previously licensed areas, known as 'in-fill drilling', could also be given the green light to extract more oil and gas from their existing projects. The sources have suggested that even more leeway may be created within the definition of the manifesto pledge.
The election pledge was welcomed by green groups as a clear sign of the government's intent to meet its legally binding net zero targets as the climate crisis intensifies. However, critics of the policy – which include backbench Labour MPs and union leaders – fear that the economic fallout may outweigh any climate benefits as imported hydrocarbons increasingly replace North Sea oil and gas.
Britain's trade unions, which donate generously to the Labour party, fear that job losses in the industry and its supply chains are accelerating quicker than companies can pivot towards the green economy.
Sharon Graham, the general secretary of Unite, said: 'Letting go of one rope before we have hold of another by ending oil and gas licences is not acceptable. It threatens both our national security and jobs.'
'Oil and gas workers cannot be the coal miners of our generation,' she added. 'Britain needs to maintain skills and invest in the industries of the future. Jobless transitions will not be accepted by Unite, neither will jam tomorrow. If Labour do not back workers other voices fill the vacuum.'
Andy Prendergast, the GMB's national secretary, said the union has called on the government to re-appraise the UK's energy policy. 'Existing policy is simply offshoring responsibility, importing virtue, and undercutting a transition for energy workers in the North Sea,' he said.
One North Sea oil worker said the government's stance represented 'nothing short of a strangulation of an industry and of the north-east Scottish economy'. He voted Reform in the last general election and said he could not name a single person who would vote for Labour.
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'Aberdeen is being bled dry,' the rig worker added. 'The hypocrisy of a government which is willing to import and burn fossil fuels for energy generation but is unwilling to support its homegrown hydrocarbon industry, all to catch the newspapers headlines for political point scoring, is astounding.'
Mel Evans, a climate team leader at Greenpeace UK, said the switch from oil and gas to renewables 'must bring workers and communities along' and create jobs in green manufacturing. Unions and climate campaigners are demanding an emergency funding package of £1.9bn a year to help with the transition be included in Rachel Reeves's spending review on Wednesday.
'It's vital that we don't leave oil and gas workers' future in the hands of private companies who put their profits above workers' security and the climate time and time again,' she said.
'We urgently need a renewable energy system fit for the 21st century that can bring down bills, helping our energy security and the climate at the same time. But we must bring workers and communities along and ensure that wind manufacturing and renewable energy jobs stay here in the UK, rather than leaving other countries to benefit from the booming green economy.'
The government's independent climate advisers, the Climate Change Committee (CCC), have called for tight controls on any new North Sea production but have also found that the emissions case for a ban on new projects is 'not clear cut'.
'The CCC has not been able to establish the net impact on global emissions of new UK oil and gas extraction,' the advisers said in a letter to former energy secretary Kwasi Kwarteng in 2022.
This is partly because the UK's oil and gas has a relatively low carbon footprint relative to the countries that supply its gas imports. The UK will continue to be a net importer of fossil fuels by 2050 even when keeping to its net zero ambition.
Under the CCC's forecasts, oil and gas will tumble from about 75% of the UK's primary energy demand now to about 23% by 2050. But that would still mean the UK needs over 14m tonnes of oil equivalent each year – most of which will be imported. The UK is increasingly reliant on imports of liquified natural gas from the US and Qatar – which have a far higher carbon intensity than North Sea gas – as well as piped gas from Norway.
On the one hand the UK could help lower global emissions by replacing some of these fossil fuel imports with domestic hydrocarbons, but on the other hand any extra oil and gas produced by the UK could risk creating a global oversupply of fossil fuels 'that would pose a risk to the aims of the Paris agreement'.
What oil and gas remains is becoming harder to extract, meaning the North Sea basin will still be in terminal decline even if the government loosens its stance.
The policy against new North Sea oil projects emerged after the global energy watchdog, the International Energy Agency, warned in 2021 that no new fossil projects could move ahead if the world hoped to meet its climate targets.
Here too the hard lines appear to be softening. By 2023 the Paris-based agency clarified its stance, stating that 'no new conventional long-lead time oil projects' should be approved but that 'investing in existing fossil fuel supply, however, is still needed'.
The government is expected to clarify its plans for the future of the North Sea through an industry consultation that closed at the end of April. Its response, which is expected in the autumn, is likely to rule out a return to annual North Sea licensing rounds – but industry insiders expect that it will allow at least some new projects to progress.
That could leave Miliband in an awkward position. There have been 'discussions within the Labour party for months over how to handle his potential resignation', said an industry source.
'I do think the government is, belatedly, becoming a little more pragmatic about [the North Sea],' the second source added. 'And I suspect that ultimately pragmatism will win the day. But it may be too late, honestly. In the North Sea we're on a worrying downward spiral of job losses and an accelerated production decline.'
A DESNZ spokesperson dismissed the claims as 'secondhand speculation' which 'bear no relation' to the government's work to 'implement our manifesto position to not issue new licences to explore new oil and gas fields'.
The Treasury did not respond to the Guardian's request beyond the DESNZ statement.