Can the North Sea be revitalised to alleviate the energy crisis

Amid ongoing turmoil within global energy markets, calls for urgent action to revitalise the North Sea have intensified. Industry leaders argue that the UK must create conditions conducive to increased production of oil and gas from domestic waters rather than relying on costly and higher-emission imports, especially during a time of geopolitical instability.

Russell Borthwick, chief executive of the Aberdeen and Grampian Chamber of Commerce, has been vocal about this necessity. However, experts caution that boosting production from the North Sea’s maturing fields requires significant investment and time, which may not translate into immediate relief for UK households facing rising energy costs.

For over two decades, output from the North Sea has been on a steady decline, with production falling to 1.1 million barrels of oil equivalent a day in the previous year, significantly down from the peak of 4.5 million barrels in 1999. The North Sea Transition Authority has provided these figures, emphasising that remaining deposits are increasingly difficult and costly to extract. Major oil and gas companies have moved their investments to more lucrative fields abroad, while smaller players remain hesitant due to the ongoing windfall taxes imposed on the sector.

This tax, initiated under the Conservative government during the 2022 energy crisis and continued by Labour, applies a headline rate of 78 per cent when oil exceeds $76.12 per barrel and gas rises above £0.59 per therm over a designated period. Consequently, significant projects like Jackdaw and Rosebank are currently stalled, awaiting approval from energy secretary Ed Miliband.

If current trends persist, projections indicate production will decline further to approximately 600,000 barrels per day by the end of the decade, reaching a mere 100,000 barrels by 2050—a critical period when the UK aims for net-zero emissions. Since 2004, the UK has become a net importer of oil and gas, increasingly dependent on supplies from Norway and the United States.

According to Offshore Energies UK, the North Sea can produce an additional 2 to 3 billion barrels of oil, potentially meeting around half of the country’s demands. However, unlocking these resources necessitates access to previously discovered reserves, alongside areas surrounding existing infrastructure that remain unlicensed.

Proponents of increased production argue that diversifying domestic energy sources is necessary for improving energy security and mitigating price volatility in international markets. Nevertheless, analysts contend that a swift rise in production is not feasible, given the investment and time required. Even if policies change immediately, meaningful progress would take years rather than months.

While higher local production could slightly decrease prices by reducing reliance on expensive liquefied natural gas, analysts caution that the UK would still require substantial imports to meet energy demand. The reality of interconnected international gas markets means that UK prices are intricately linked to global fluctuations.

Industry observers note that tapering the windfall tax by 2027 could enhance output to approximately 800,000 to 900,000 barrels per day by the end of the decade. With an estimated £12 billion required in capital expenditure over five years, boosting domestic production might increase government revenues, which have already seen a steep decline from £9 billion in 2022-23 to a projected £300 million by 2030-31.

The interplay of geopolitical events has introduced uncertainties into energy pricing, prompting discussions among policymakers about future supply security. Recent reports have indicated that the UK might face gas shortages by 2030 unless the transition to renewable energy is accelerated.