Squeezing oil and gas from rapidly-depleting resources in UK waters smacks of desperation. The most bountiful reservoirs have long been in decline or dried up. Hence, too, the exit of many of the oil majors whose rigs once dotted the North Sea. It also looks like a political non-starter: climate activists will squeal at the apparent reversal back into fossil fuels.
Yet the move to reaccelerate fresh drilling for oil and natural gas in UK waters – the planned licensing round will be the first since 2020 – is less out of kilter than it appears. Both commodities have soared in price over the past year. Gas has jumped four times to 229p per therm, six times that in the US.
Sure, it comes too late to replace Russian energy. But fossil fuels have a role to play in the transition to decarbonisation.
The UK continental shelf has undergone huge changes over the decades. Once a net exporter of energy, the UK now relies on imports for much of its domestic supply. Yet home resources have hardly been scraped bare.
There were 4.4bn barrels of oil equivalent (BOE) for proven and probable reserves at the end of 2020, according to official estimates – enough to sustain production by 2030. The Oil and Gas Authority, tellingly renamed the North Sea Transition Authority, reckons that a further 6.8bn of contingent reserves and 3.7bn potential BOE exist. These resources can help bridge any worrisome energy gap in the shift to a net zero carbon future.
Nor need it require decades to bring this energy on stream. The historic average has been concertinaed by the arrival of new technologies. Fields now being developed, such as Elgood and Blythe, are smaller and have infrastructure already in place. Turnround times could shrink to a couple of years or even less.
Those drilling the oil are also on a different timetable than the big oil and gas majors of yore. Smaller and nimbler, today’s breed of explorers are often backed by private equity seeking speedier paybacks, although financial buffers are also smaller. But needs must. More exploration is necessary short-term to protect the country’s energy security and eventual energy transition.
Our popular newsletter for premium subscribers is published twice weekly. On Wednesday we analyze a hot topic from a world financial center. On Friday we dissect the week’s big themes. Please sign up here.