OGUK warns against UK North Sea licensing ban

Reports that the UK government is considering a ban on new exploration licences have been met with criticism from industry lobby group Oil and Gas UK (OGUK), which has warned that any move to curtail activity in the North Sea risks hampering rather than helping the country's ability "to deliver a net-zero future".

UK newspaper the Sunday Telegraph has reported that a ban on new oil and gas exploration licences in 2040 is among the options under consideration as the UK looks to move away from fossil fuel use. It comes as the UK prepares to host November's Cop 26 UN climate change summit in Glasgow and follows the government's decision last year to bring forward a ban on the sale of new gasoline and diesel-fuelled cars to 2030.

The UK's Department for Business, Energy and Industrial Strategy (BEIS) would not be drawn on whether a ban on new licences is being considered. But it reiterated today that a review on the future of offshore oil and gas licensing is continuing and that this review is seeking to ensure that the licensing regime "remains compatible with our target to reach net zero emissions by 2050".

OGUK points out that the UK's offshore oil and gas industry "was one of the first sectors to commit to be a net-zero industry by 2050, setting demanding interim targets to halve its own emissions by 2030". And it highlights that the industry is "leading the way on green technologies including the switch to hydrogen and long-term storage of CO2". Curtailing activity through licensing constraints would risk "impeding the UK's ability to deliver a net-zero future, damaging our domestic supply chain and increasing energy imports whilst exporting the jobs and skills", OGUK said.

The government has acknowledged that the oil and gas sector, which supports 270,000 jobs across the UK, plays a "key role" in developing the infrastructure and capability for green technologies. "We will agree a transformational North Sea Transition Deal with industry in the coming months to create jobs, retain skills and deliver new business and trade opportunities to support the sector's transition to a lower carbon future," BEIS said today.

Mature basin

Awards in the UK's most recent offshore licensing round were announced last September, when 113 licence areas over 259 blocks or part-blocks in mature areas close to existing infrastructure were offered to 65 companies. But the following round was put on hold. The UK's upstream regulator, the Oil and Gas Authority (OGA), said last year it was taking a "temporary" pause. "This will allow relinquishments to take place so more coherent areas may be reoffered in future, giving industry time to deliver on work commitments in the existing portfolio of licences," it said at the time.

Private equity-backed independent Chrysaor was awarded the highest number of operating stakes in the most recent round. Total, Shell, BP, independents Ithaca Energy and Neptune Energy, London-based exploration business Deltic Energy and Norway's state-controlled Equinor were among the other firms offered operatorships.

The UK's continental shelf is a mature oil and gas province and has higher costs than many other basins. Oil and gas production has been steadily declining since peaking at over 4.5mn b/d of oil equivalent (boe/d) around the turn of the century — output averaged about 1.7mn boe/d last year. And OGA's most recent projection, issued last month, forecasts a further decline in 2021-26. The last five years have seen an influx of new companies, many backed by private equity, enter the UK's offshore sector and many large firms, mostly recently ExxonMobil, reduce their exposure to focus on investment elsewhere.

Last year, Denmark became the first North Sea producing nation to announce plans to end oil and gas extraction. The country's parliament voted to phase out North Sea oil and gas production by 2050. The plan included cancelling the country's eighth licensing round.

By Konstantin Rozhnov