[[{“value”:”
- The Labour government under Keir Starmer has upheld its promise to halt new oil and gas exploration but is now allowing tiebacks—connecting new reserves to existing fields.
- The government has decided not to renew the windfall tax on oil and gas companies beyond 2030.
- Facing declining domestic production, energy security concerns, and industry pushback, the UK government is adjusting its stance.
When the Labour Party of Keir Starmer won the latest UK elections, it vowed to stop new oil and gas exploration. The Starmer cabinet has stayed true to its word on that—but it is looking for ways to boost production through other means.
In early February, a Scottish court ruled the previous government’s approval of two new oil and gas projects in the North Sea unlawful. The ruling was the result of climate activism that challenged the approval of the Jackdow and Rosebank projects. The court sided with the activists. Only the Starmer government did something that activists might not have expected. It said it had only promised to ban new developments, not ones already approved by previous cabinets.
That should have been evidence enough that the transition agenda of the Labour government is not as immutable as it might look. Yet, now we have further evidence that the agenda is not set in stone and wind and solar cannot replace oil and gas in any meaningful way anytime soon. In its latest discussions on energy policy, the Starmer government appears to have found a way to continue stimulating more oil and gas production without compromising its green agenda—via tiebacks.
The Financial Times reported the news, citing documents from a cabinet consultation about “how we might ensure that our regulatory regime can support activity where it is needed to deliver the government’s broader strategic priorities”. This support, apparently, can be ensured by tapping new resources in deposits adjacent to already producing fields. The approach is bound to raise the hackles of climate activists. And indeed, it should, because whether it’s a whole new field or a new field next to a mature one, it is still oil and gas that will be coming out of it. But it looks like for the Starmer government, this is a solution that should satisfy all sides.
More importantly, however, the tieback will secure continued energy production in one of the most ambitious transition projects in the world. “We are pleased to see that the government has appreciated that their campaign message was simple, but the reality is more complex, and the industry will be pleased to give its input on how this can be translated into a pragmatic and workable new regime for the future of the North Sea,” said the chief financial officer of Serica Energy, a major producer in the North Sea, in comments on the news.
That’s not all, either. In addition to devising a way to continue oil and gas production, the UK government will also not renew windfall taxes instituted for the oil and gas industry by the previous government in a bid to take advantage of massive supply crunch-related profits that the industry booked in 2022. The windfall tax regime ends in 2030, and the Starmer cabinet has no plans to renew it unless wholesale energy prices rise to an unusual level, per the Financial Times.
This is a significant departure from earlier signals given by the government about its stance on the oil and gas industry. When they came into power last year, Labour actually raised the windfall profit tax even further, sparking outrage from the industry that essentially said they would eventually up and leave if this continued. Production has already declined by 10% since the introduction of the windfall profit tax, and that has led to the loss of $6.5 billion in cash flow, per Wood Mackenzie. It seems that the Starmer cabinet finally saw sense, and from 2030, oil and gas operators will return to a tax rate of 40%, down from the current 78%.
“The government acknowledges that changes to the oil and gas fiscal regime in recent years have led to a period of uncertainty for the sector and its investors,” the Treasury said in a statement that was part of the consultation papers in yet another good sign for the UK’s energy industry.
Essentially, it seems that one of the most pro-transition governments in the world is waking up to the fact that hydrocarbons are still the dominant source of energy and that local production—or homegrown as they like to call wind and solar—is better than imports.
“For as long as we need oil and gas, banning new licences never made any sense. In the new geopolitical reality it is madness,” GMB, one of the largest trade unions in the country, said. It was likely this new geopolitical reality that motivated the decision on the tiebacks, and it may yet again lead to a more comprehensive reconsideration of energy policies. At some point, the government may even drop its decision to ban new licenses. It just needs a little more time to fully realize that using your own hydrocarbon resources really is better than importing them.
By Irina Slav for Oilprice.com
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