What is the future of the North Sea?

Iran’s potential closure of the Strait of Hormuz, through which about one fifth of the world’s oil passes each day, would have had huge global ramifications. Already, energy security was high on the agenda for the UK Government following Russia’s invasion of Ukraine. The latest developments in the Middle East only serve to highlight how vulnerable oil and gas supply lines are. Prices rocketed, then dropped and with the situation still uncertain, what will happen next is anyone’s guess.

Inevitably, these events will be met by calls to greenlight more drilling in the North Sea. This would, the argument goes, ensure the UK is less vulnerable to international events because it would be able to rely on its own supplies. But so too will there be calls to end the UK’s reliance on fossil fuels even sooner. Expanding the renewables sector, it is said, would not only increase energy security but help us along the journey to net zero.

Against this backdrop, the UK Government is developing its policy on the future of the North Sea. Energy Security and Net Zero Secretary Ed Miliband has already ended the awarding of new exploration licences, a commitment made in Labour’s manifesto last year, while a consultation has been taken forward on how to “drive the development” of the clean energy industry.

“Irrespective of the position on licences, there is an urgent need to plan for the future of the North Sea,” Miliband wrote in the consultation’s foreword. “The oil and gas industry has lost around a third of its direct workforce in the last decade. The government is determined to coordinate the scale-up of the industries which will shape the future of the North Sea (including offshore wind, carbon capture and storage, hydrogen, and decommissioning) as oil and gas extraction in the North Sea declines. This is vital for delivering the best outcomes for workers and communities, energy security, and sustainable economic growth.”

The UK can meet more of its oil, gas and renewables needs from homegrown resources – we need it all

The decision not to award new licences has been controversial. Both the Conservatives and Reform have criticised the policy, as have trade unions. There is significant concern that it will shut down the sector prematurely, leaving the UK even more reliant on foreign exports while also resulting in job losses.

Trade body Offshore Energies UK (OEUK), which has argued that licensing should continue, has also questioned UK Government figures on the amount of oil and gas still retrievable from the North Sea. While it is true the basin is in decline, a report published last week suggested there could still be 7.5 billion barrels of oil – 3.2 billion more than government estimates.

OEUK chief David Whitehouse argues that the choice is not either/or between fossil fuels and net zero. He says: “In an increasingly volatile world, if we act now the UK can meet more of its oil, gas and renewables needs from homegrown resources – we need it all… Our message to government is to back pragmatic homegrown production, unlocking an additional £165bn of economic value to the country, protecting 200,000 jobs and meeting our climate goals.”

But even as the UK Government holds firm on not approving new licences, questions remain over those which had been given the go-ahead by the previous government but were blocked by the Supreme Court. Judges ruled in January that licences for the Rosebank and Cambo oil fields were unlawful because the environmental impact assessments did not include the emissions from burning fossil fuels extracted from those fields.

^{Offshore wind is an increasingly important part of our energy mix | Alamy}

Ministers have now published fresh guidance on those environmental impact assessments, opening the door for those licences to be reissued if other factors, such as economic impacts, outweigh the environmental cost. Climate campaign group Uplift says these decisions will be a “real test of [the government’s] climate credibility”, while the Scottish Chambers of Commerce said the guidance proved ministers were “willing to take critical action in pursuit of economic growth”.

Meanwhile, the Scottish Government’s energy strategy is still on hold, with ministers pointing to “a range of recent developments” at UK level which will “inform and influence” it. A draft version of the plan was published more than two years ago for consultation, which included a “presumption against new exploration for oil and gas”. But under the leadership of John Swinney, the government appears to have started distancing itself from that policy.

When pressed on the matter at FMQs in May, Swinney avoided saying whether his government still supported the presumption and instead spoke of the need for licensing decisions to be “the subject of a climate compatibility assessment”. In addition, nearly half of the SNP’s MSPs have backed Unite’s ‘No Ban Without a Plan’ campaign, including cabinet member Angus Robertson.

Away from licensing, the UK Government is investing in new technologies which have the potential to reduce the carbon footprint of the oil and gas industry. Major funding for carbon capture and storage was announced in the recent spending review, including £200m for the Acorn project and Scottish cluster in the north-east. The ambition is to get as many of these projects ready for final investment decision (FID) by the end of the parliament.

The process of job preservation starts today

The decision was welcomed by Nic Braley, general manager of Acorn. He tells Holyrood this initial tranche of funding “allows us to continue to mature the technical, commercial and regulatory frameworks” to progress towards FID.

And while the Scottish cluster is behind others in the UK, which were given funding by the last government, Braley says this is not necessarily a bad place to be. “We can learn the lessons of track one and think about the ways in which we can optimise the development of the Scottish cluster.”

This is not the first time CCS has been considered in Scotland. Fife’s Longannet power station was set to become the UK’s first foray into the technology, announced by the energy secretary in 2010 – one Ed Miliband. But the project was canned by the coalition government 18 months later due to concerns about rising cost.

The landscape today is vastly different, and Braley is confident that those in power are well behind CCS. “There’s lots of political will to make this happen, both in Scotland and in Westminster,” he says. “It’s our job now to make sure that we are able to translate that political will into real delivery and move the project forward at pace so that we can capture the benefits for Scotland.”

^{The North Sea is a mature oil basin | Alamy}The success of Acorn is hugely important for the future of the North Sea because it provides a “route to decarbonise Scottish industry”, Braley says. Its location in the north east means it benefits from existing skills and infrastructure, including pipelines down to the central belt. Grangemouth is likely to be an early beneficiary of the new technology, as both governments look to turn the now-defunct refinery into a low-carbon industrial hub.

Acorn will create new jobs, mainly during construction phase, but most importantly it is projected to protect around 18,000 existing roles. That’s because it will give firms confidence to continue investing in Scotland. Braley explains: “A large part of the economic development and benefit is coming through supporting those

customers who will be users of our network – to both preserve their current employment by giving them pathways through which they can evacuate their CO2 and therefore decarbonise their current operations, as well as to start to plan for the long-term low-carbon suite of opportunities. The process of job preservation starts today.”

There are opponents to the development of CCS technology, however. Many climate campaigners are fearful that it will allow the fossil fuel industry to continue as normal, when in fact even with CCS there needs to be a winding down of the sector. There are also those who are sceptical that it will work at all.

Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit (ECIU), says the technology “has to be tried on a big scale at some point in order to actually answer those questions”. And while it is being driven now by the “big North Sea players”, in the future its use will be “very targeted”.

The net zero transition has the potential to be the saviour of the North Sea industry

“We can’t just carry on using fossil fuels and burying the emissions. Maybe in the short term, that’s what happens and it’s a way of helping to kickstart the CCS industry,” he says. “But in the longer term, that’s just not plausible. It has to be used for industrial processes, for example manufacturing cement or certain chemicals or fertilisers and so on, where if CO2 is produced and it can’t be avoided, you bury that.

“CCS is obviously attractive to the existing fossil fuel industry because it’s very close to the current business model that allows them to carry on operating as they do for a bit longer. In terms of the overall economy and our decarbonisation strategy, it has to be the gateway that helps CCS to become established, but it has to be used sensibly in future.”

CCS technology, as well as the rapid growth in renewables, has come at a “remarkably convenient time” for the North Sea, Cran-McGreehin continues. “The basin is in decline. The net zero transition has the potential to be the saviour of the North Sea industry. If that was not happening then there wouldn’t be much for the sector to move into. The oil and gas runs down, fields close, jobs are lost – if we weren’t building offshore wind, if we weren’t building interconnectors, if we weren’t doing CCS, there wouldn’t be anything to replace these industries in the North Sea.”

Oil and gas is no longer something that is going to be significant for our own security

The benefits of this transition do not stop there, though. A CBI report, commissioned by the ECIU, found the UK’s net zero economy grew 10 per cent between 2023 and 2024, generating £28.8bn. Factor in the supply chain, and its value rockets to £83.1bn. In Scotland alone, the net zero economy has grown by 21.3 per cent since 2022 and now makes up almost five per cent of the total economy.

Yet despite these opportunities, it is clear the transition is still not happening fast enough to cope with the decline of the North Sea. Scotland’s Just Transition Commission published its Aberdeen report at the end of May, warning the area was heading for an “unjust transition”.

It said: “Without urgent and ambitious action, investment and government leadership, Scotland’s offshore transition will not take place fairly, with harmful effects on workers, communities, employers and the regional economy of the north-east that could otherwise be avoided.”

But Cran-McGreehin says the solution is not more oil and gas. “Renewables are much more important” for the North Sea’s – and the UK’s – future, he says. “We’ve been a net importer of oil and gas for the past 20 years or thereabouts. It is no longer something that is going to be significant for our own security. It’s also not going to be significant really for our finances either because production of both are dramatically down – three-quarters lower than their peaks – so the actual amount being produced, the number of jobs required, the amount of tax take for the Treasury, these are all much lower and on the way out.

“People talk about more licences, we could drill more, we could produce more. These fields are more difficult. They’re last for a reason because they’re in deeper water, they’re further from shore, the geology is worse. They’re going to be harder to drill, more expensive per unit, and so in order to make a profit against the oil price and gas prices, which are set internationally and are pretty volatile, they have to ask for lower taxes so the Treasury is making less money per unit. And then you’ve got a multi-billion pounds decommissioning bill to be paid. Fiscally, new licencing [and] changing the rules, it’s not going to be a huge benefit to the UK.”