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Power struggle: How the North Sea became a general election battlefront

Oil and gas is a major driver of the UK economy | PA

Power struggle: How the North Sea became a general election battlefront

North Sea oil and gas has underpinned the UK economy for decades. In this election, parties are fighting an ideological battle over its future.

It is a battle in which much is at stake, not least the climate amidst warnings from scientists that renewables must be the way forward. And, with the just transition away from fossil fuels still far from being achieved, it is a fight on which thousands of Scottish jobs and the future of the north east also depend.

Most of the UK’s gas and oil jobs – more than 84,000 – were based in Aberdeen and Aberdeenshire in 2022, meaning the area is as invested in the energy sector as it gets. And as a major economic driver worth billions of pounds to the Exchequer, it’s an area the next government must have a clear plan for.

Despite Rishi Sunak’s summer 2023 pledge to grant as many as 100 new licences for fossil fuel extraction, not a single new well has been drilled in the North Sea this year and the industry is keenly awaiting the outcome of the 4 July vote to find out what the direction will be. Reports suggest anything between 20,000 to 100,000 jobs are on the line and many workers are worried.

Back in February, the Press & Journal newspaper published a front page that decried Labour figureheads including Keir Starmer and Rachel Reeves as “traitors” over their party’s plan for reform. The claim was made on the basis of an editorial by Ryan Crighton, then of the Aberdeen and Grampian Chamber of Commerce and now of north east lobbying outfit True North, which said Starmer’s party had “delivered one of the biggest betrayals in Britain’s industrial history”. That charge – which raised hackles within the Labour ranks and has been strongly denied – was made on the grounds of a policy platform that includes a sea change in the energy sector. Outgoing Scottish Conservative leader Douglas Ross has branded it “dangerous”.

In the last parliament, the Conservative government’s Offshore Petroleum Licensing Bill was approved by the Commons but narrowly failed to become law due to the calling of the general election. Had it come into force, it would have required the regulator to hold yearly rounds for new oil and gas licences in a bid to maximise production.

If the Tories triumph at the polls, they’re expected to bring that legislation back, something environmental campaigners oppose but which provides reassurance to the sector. But Labour, the expected winner, has said it will stop the issue of such licences and set a windfall tax on North Sea oil and gas profits at a higher rate of 78 per cent, removing what it says are “unjustifiably generous investment allowances” open to companies to reduce their tax liability.

And it has pledged to establish a new state-owned power player, GB Energy, here in Scotland to secure domestic supplies, boost jobs and accelerate the switch to renewables. 

Meanwhile, the SNP has taken what Deputy First Minister Kate Forbes calls an “in-between” position that would see new drilling licences considered on a case-by-case basis to ensure “climate compatibility” and protect the livelihoods of workers.

That’s a move away from the stance taken by Nicola Sturgeon during her tenure as first minister, when the Scottish Government opposed developments such as Rosebank while emphasising renewables as the way to fuel the just transition. Even as recently as January 2023, the Scottish Government’s draft energy strategy included a presumption against exploration. Labour’s plan, SNP leader John Swinney has said, is akin to the dismantling of heavy industry under Thatcher. “She created an industrial wasteland in central Scotland and we’re still picking up the pieces,” he said.

And so the three largest parties’ positions on North Sea drilling can perhaps best be summed up as ‘yes, no and maybe’. Offshore Energies UK, which represents the sector and opposes Labour’s strategy, says there are no benefits to the current uncertainty. “Stability and trust are important,” said its chief executive David Whitehouse. “We’re seeing a significant reduction in confidence in the sector.” 

Meanwhile, Aberdeen businessman Sir Ian Wood, who chairs economic development agency ETZ, has said it would make “absolutely no sense” to end domestic oil and gas production only to rely on imports. “Quite clearly we have built a strong platform for success,” he said, “but in order to maintain a competitive natural advantage there are still challenges to be overcome if we are to turn the potential into an energy and an economic reality.

“A general election is looming large, and it is imperative our politicians, across all parties, act to accelerate transition whilst protecting the very sector that gives us our competitive advantage in maintaining our position as global energy leaders.”

Firms operating in the North Sea, where there are more than 200 developments, currently pay four profit-related taxes on production, including ring fence corporation tax, supplementary charge, petroleum revenue tax and the energy profits levy. Together, these are expected to bring in £3.8bn for the public purse in 2024-25.

The total has been subject to massive fluctuations in recent years as a result of global factors driving prices up and down. Russia’s invasion of Ukraine helped drive UK oil and gas revenues to £9.9bn in 2022-23 and pushed both security of domestic supply and affordability for consumers further up the political agenda.

Swinney has  proposed a “social tariff” for people who are elderly or have disabilities to give them “reassurance and peace of mind” on basic household costs. If enacted, it would cost around £7.8bn this year, Swinney said, and would be paid for by cutting into the profits of energy firms. As many as one third of all Scottish households are understood to live in fuel poverty to some degree, and Labour has said its GB Energy proposal is the answer.

The idea had been mooted months before the general election campaign was called, but it has formed a core part of Starmer’s campaign. Labour has earmarked £1.7bn a year for the delivery of this state-owned company, which aims to accelerate progress in both renewables and nuclear power, powering industrial renewal while lowering bills for consumers. Despite making much of a Scottish HQ for the operation, Labour has declined to say exactly where this will be. Power players of the north east feel their region is the natural home for such a vehicle, but Scottish Labour leader Anas Sarwar has said the location will not be named until after the votes have been counted. The 53,000 jobs Labour claims will be supported by the company will, Sarwar said, be “good for Aberdeen, good for the north east, good for Scotland and good for the UK”.

The party has seemingly struggled at times to articulate its vision for GB Energy, with Starmer telling BBC Radio Scotland that the body will be “an investment vehicle, not an energy company” before the party clarified that it will generate power in addition to owning, managing and operating green schemes with private operations.

Friends of the Earth has welcomed GB Energy as “great news”, but according to the Conservatives, the scheme is a “vanity project”, and both parties back the roll out of further nuclear projects. That’s where the SNP differs, with Swinney having said he is “not a fan of the nuclear industry” and does not support investment in nuclear plants. “I never have and I never will,” he said, arguing for the focus to be on “clean, green, renewable energy resources”. Former Labour MP Tom Greatrex, the chief executive of the Nuclear Industry Association, called that position “hopelessly ideological and anti-science” and said such generators had reduced carbon emissions and created jobs. Calling for a volte face on the matter, Greatrex said Swinney would “cost Scotland billions in investment and thousands of good jobs for our young people if he instead sets his face against reality”.

So those are the arguments, but not everyone wants to hear them. In fact, some would seek to have politics taken out of the equation altogether. Long-serving trade union official Jake Molloy, who recently stepped down from his role as regional organiser with RMT, said the energy sector has become a “political football and the people that will ultimately suffer are the workers caught in the middle and their communities”. 

Jake Molloy | PA

“If we’re not careful, we are going to play out the whole miners and steel situation again,” he said. “For me, the UK is on a knife-edge right now and if we don’t do something constructive and meaningful very soon we risk losing out big time.”

There has been much handwringing in recent times about how to turn off the oil and gas taps after 50 years of production. While the consensus is now that renewables are preferable to protect the environment, the election suggests we’re still some way off from reaching consensus on when this should be brought about, and how it will be accomplished.

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