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Will pumping more oil and gas solve the energy crisis?

Business Sep 1, 2022 at 20:57

UK North Sea oil and gas production has been in decline since the early 2000s

Experts say boosting domestic supplies is ‘unlikely to tame super-high prices’ in immediate term

Liz Truss is reportedly to approve a series of oil and drilling licences in the North Sea in a bid to tackle the UK energy crisis.

According to The Times, the Tory leadership front-runner intends to green light the licences in one of her first acts as prime minister, “as part of a long-term plan to ensure Britain’s energy security”.

The paper also reported that Business Secretary Kwasi Kwarteng, who is widely tipped to become chancellor under Truss, and his expected replacement, Jacob Rees-Mogg, have been meeting oil and gas companies to negotiate a deal to secure energy supplies this winter.

Truss’s ‘two-pronged’ North Sea plan

Russia’s invasion of Ukraine “has made the immense task of reducing the global economy’s addiction to fossil fuels even more daunting”, said the Financial Times.

Existing pledges to cut carbon emissions to net zero by 2050 were “already challenging enough”, said the paper, but now “governments and companies are scrambling to balance their green ambitions with the new imperatives of energy security”.

Truss’s North Sea plan, which The Times described as “a two-pronged approach that involves securing more gas from Norway while maximising domestic production”, comes “against the backdrop of a continent-wide scramble to secure gas supplies before the winter, after Vladimir Putin began choking off pipeline flows amid a geopolitical standoff over his invasion of Ukraine”, said The Guardian.

“The biggest problem is spiking natural gas prices,” added Foreign Policy, with European supplies costing around ten times more than they were on average over the last decade and about ten times higher than they are in the US.

The specific problem for the UK, said The Guardian, is that it “relies more heavily on gas than most European countries and has very little storage after the closure of the Rough facility off the Yorkshire coast in 2017”.

While boosting supplies “will strengthen UK efforts to fight off blackouts this winter and potential supply crunches”, said City A.M., it is “unlikely to tame ultra-high prices” in the immediate term, a view which was also supported by The Times.

The House of Commons climate change committee has previously said it takes an average of 28 years for an exploration licence to lead to oil and gas production, while the Daily Express reported that “many experts and campaigners have claimed that providing more exploration licences is unlikely to immediately ease prices as the gas and oil will be sold on global markets”.

For example, British oil and gas production rose by 26% in the first six months of the year, according Offshore Energies UK, “yet prices are still soaring and are only expected to get worse”, said the Express.

What about fracking?

The Telegraph reported that the current chancellor, Nadhim Zahawi, is “eyeing measures to turn the tide of public opinion on fracking”. This is part of a twin approach to provide better incentives for investors to back gas projects while persuading residents to support extracting shale gas amid concerns it contaminates the environment and causes earthquakes.

The paper pointed to a softening of public opinion following the spike in energy prices, with support for fracking doubling over the past year.

Are renewables the answer?

Plans to open up more North Sea oil and gas fields and end the moratorium on fracking “are not exactly in keeping with Britain’s net zero efforts”, said Politico. They “are unlikely to go down well with the green lobby after this summer’s record-breaking temperatures”.

The Labour Party chair, Anneliese Dodds, said more oil and drilling licences in the North Sea was not the answer, while Greenpeace chief UK scientist, Dr Doug Parr, warned the UK’s dependence on gas was among the factors driving up bills. He called for faster action to promote new wind and solar projects, as well as improving energy efficiency by insulating UK homes, “which are among the leakiest in Europe”, according to The Guardian.

As part of Labour’s proposals to keep energy bills frozen at their current rate, the party has also proposed long-term plans to insulate 19 million homes in the UK within the next ten years.

The Telegraph reported that Treasury officials are also looking at a new system that would break the link between the price of low-carbon electricity and that of natural gas, which “would allow energy suppliers to take advantage of the comparatively cheaper cost of electricity generated by wind and solar farms – and pass on the savings to households and businesses”.

Yet while renewables may well provide the long-term solution to improving energy security and insulating countries from future crises, the switch to green energy is still expected to take years.

Elon Musk warned it could be “some decades” away when he told an energy conference in Norway on Monday that the world needed to continue extracting oil and gas while it develops renewable energy.

Claiming it is “one of the biggest challenges the world has ever faced”, the Telsa tycoon said that “realistically I think we need to use oil and gas in the short term, because otherwise civilisation will crumble”, Sky News reported.