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The Herald Scotland
14 hours ago
- Business
- The Herald Scotland
Does Scotland really need more offshore wind farms?
Often critics will say there are already enough onshore wind, but what does that mean? And is that really seen in the figures? The claims are examined here, as well as key issues like constraint payments and why so many of the UK's onshore wind farms are in Scotland. Claim: Scotland is already producing more electricity than it needs Yes. Electricity transfers data show that Scotland exported 21.0 TWh of electricity and imported 1.3 TWh of electricity in 2024. This means that Scotland's net exports of electricity (exports minus imports) in 2024 was 19.7 TWh. In 2024, Scotland generated a record 38.4 terawatt hours (TWh) of renewable electricity, suggesting that it exported around half. Claim: Scotland already has enough onshore wind capacity to meet its total electricity 2050 demand. Currently, according to DESNZ, Scotland has an onshore wind capacity of 10GW, and a gross peak demand of 4GW. However, NESO, in its Ten Year Statement estimates gross peak demand for Scotland in 2050 at between 8.5GW and 11GW depending on what degree of electrification takes place. 'Over the next 10 years,' it says, 'rapid growth in renewable -generated electricity in Scotland will mainly be attributed to offshore wind. This will cause far greater power transfer requirements across the Scottish boundaries, increasing the network reinforcement needs in some areas. Generation capacity in Scotland heavily exceeds demand, thus Scotland will be expected to export power into the rest of Great Britain most of the time except during periods of prolonged low wind, where the reverse may occur.' Graph of Scotland's gross electricity demand from NESO's Ten Year Statement (Image: NESO) However, in a renewable system, where generation is intermittent, capacity needs to be significantly higher than peak demand. Since there are, as yet, no target figures for Scotland's wind generation for 2050 – though overall, according to the Climate Change Committee's Seventh Carbon Budget, UK is aiming for 125GW offshore wind, 27GW onshore wind and 106GW solar- it's hard to know by how much Scotland is likely to exceed its own demand. Claim: Scotland already has enough wind consented and in planning for 2030 or 2035 One Caithness-bsed campaigner who has looked at the figures, is Kathrin Haltiner, who says, 'For the whole of Scotland for 2030 and even to 2035, what is already in the planning system, without any scoping applications, is more than enough to reach these caps and these caps are important because anything that goes over these caps is not going to help with net zero.' In a recent analysis she writes about the North of Scotland, noting that the Clean Power Action Plan 'caps onshore wind farm development for North Scotland at 9GW for 2030 and only adds a very small capacity increase for the whole of Scotland until 2035. Clearly SSEN's ambitions are oversized.' 'North Scotland already has 6.3GW of additional onshore wind farm capacity in the pipeline: 0.2GW under construction, 3.2GW consented and awaiting construction, and 2.9GW in planning (excluding projects only at scoping stage). "Together with the already built 3.8GW the potential capacity in North Scotland is 10.1GW, that is 1.1GW over the capacity advised in the Clean Power 2030 Action Plan. This means consents can be given more selectively from now on. The urgency used as an argument from developers to get a consent does not hold up anymore.' Do these figures stack up? What is current onshore wind capacity According to DESNZ, at the end of last year Scotland had an installed onshore wind capacity of 10.3GW of onshore wind. Haltiner came up with a slightly different figure when she added up all the operational capacity in the Renewable Energy Projects Database, making 9.4GW. This is also the figure I got when I did the same calculation. How much more is already in the process of being built? While recent official totals haven't been published, it is possible to total up the projects categorised as under construction on the Renewable Energy Planning Database, giving a figure for onshore wind under construction in Scotland of 1.7GW. A further list of projects consented to, but awaiting construction, totals 5.4GW. All together that's 7.1GW already underway. What about projects that are already in the planning process? Again, data in the REPD gives us an idea of what is a live planning application, as well as those projects that have been abandoned, refused or withdrawn. Kathrin Haltiner has totalled these up to 8.1GW. How does this compare with the cap for Scotland for electricity generation for 2030? The Clean Energy Action Plan, in its update on its annex, states that Scotland, as whole, has a cap for electricity generation for 2030 of 20.5GW. This is a massive leap from the current estimate of 10.3GW, and even more from the 9.4GW in the REPD. But are we nevertheless, as Kathrin Haltiner, suggests already in danger of exceeding it? According to Haltiner's calculations, if we add already operational wind to all the wind farms already under construction and consented to is, for the North of Scotland, 1.1GW greater than the sum of all onshore wind projects that are operational, in construction, consented to and in the planning system. For South of Scotland, the equivalent total is 2.5GW more than the 11.5GW cap. But the question remains, how many of those projects will make it through planning and become final operational projects? Another way of looking at it is that if, across Scotland, we already have 16.5GW already in operation, in construction or consented to, leaving only 4GW still to take up. But there are actually twice as many (8.1GW) of projects sitting in the planning system and not all of those can happen. Of course, some of those may, in any case, be withdrawn, some projects will be abandoned, others reduced, and some, even from the list of projects awaiting construction may not even happen. Others may not happen within the timeframe. Does that mean we are set to have much onshore wind for current caps? No, but in the unlikely event that every project that is sitting in planning were to be built Scotland would significantly exceed its cap. These figures suggest that only half of these projects can happen. Is it a reason to slow down? Not according to Scottish Renewables. Their director of onshore, Morag Watson put it this way, with different but similar figures - actually suggesting that even less of the projects currently in planning will be needed by 2030, but noting the need for continued urgency. 'Scotland has to increase its onshore wind capacity from 10GW to 20GW in about five years. In Scotland at the moment in the pipeline of projects that are consented but not yet built, we have 7.5 GW. So we need everything in the pipeline and just over 2 GW more. So this idea we have too much wind already is just not borne out by the strategic plans.' She also points out that the process of going through scoping, planning and constructing a wind farm can be long. 'Viking windfarm on Shetland, that was a 15 year process to make the needs case for that. Renewable projects can wait up to ten years for a grid connection and you only get a connection to the grid when it's needed.' 'A project can go through the planning system, but just because they have planning permission doesn't mean they are about to get built and connected to the grid. Post planning they'll get a grid connection date and they will work to that grid connection date as to when they start building.' Mostly Watson notes, the strategy up till 2030 is about reducing our dependency on gas, which is not only responsible for significant carbon emissions, but also, through its high price, drives up electricity bills. By 2030, the goal is to reduce the amount of gas used to generate electricity down to about 5% on the system. She says: 'At the moment it's about taking the gas and other fossil fuel generation off the system – replacing it with renewables because they are cheaper and more reliable in terms of pricings that you pay. ' Is there also enough in the pipeline for 2035? 'Post 2030,' Morag Watson explains, 'what we start to see is the electrification of transport and heat really accelerating. That's when you see electricity demand really grow." The next milestone and cap along the way is 2035, and what's striking is how little more capacity – just 700MW – is being allocated to Scotland over that period. This is a tiny fraction of what Scotland has already built and is set to achieve in the next five years. Scotland's offshore wind industry has already flagged that up as a problem. A group of 13 developers signed an open letter to UK Energy Secretary Ed Miliband amid concerns of a 'de-facto ban' on Scottish onshore wind post-2030. Earlier this year a group of In the letter, they stated: 'Currently, the cap in the Plan will allow only 700MW of additional Scottish onshore wind capacity to connect between 2031 and 2035. 'This would result in a decrease in the rate of installations allowed after 2030 of over 90%, and amounts to a de-facto ban on Scottish onshore wind post-2030. What anti-wind farm campaigners see as ammunition for the argument that less windfarms should be consented, the industry itself is seeing as a threat, and reason to push for more capacity – but that capacity is determined by the grid, and therefore. Claim: Scotland is already doing more than its fair share of onshore wind Last year, Scotland, according to RenewablesUK, was operating 63% of the UK's onshore wind capacity. By 2030 Scotland will be producing 20.5GW of power, well over two thirds of the onshore wind generation in the UK, which is set at 27-29GW. As this map shows, Scotland is doing a lot of the heavy lifting when it comes to onshore wind. Partly this is because previously England had a de facto ban on onshore wind developments. But there are, as Morag Watson told me, other factors that feed in to why Scotland, in any case, is getting most of the wind. 'The reason for this is you can only put onshore wind where the wind consistently blows at 7ms or faster and there are chunks of England where that doesn't happen. You cannot build a wind turbine within 800m of someone's home, or with the bigger turbines, within 1km of someone's home. "So if you take a map of the UK and take out everywhere where the wind is less than 7 m/s and then take out everywhere where you're within 800 m of someone's home, and then remove National Parks and national scenic areas, where you also cannot build wind, and again is why you don't see onshore wind predominantly down the west coast an central of Scotland, the only places you can build onshore wind are these parts of Scotland and mid Wales. This is why Scotland does do the heavy lifting on onshore wind.' But, she notes, England is doing most of the heavy lifting on solar. Unsurprisingly, the south of England, where the sun is stronger, is also where there are more solar developments. Why are wind farms so concentrated in the North East and Lanarkshire? Wind farms tend to be where the grid is, so they can connect to them – and hence pattern of distribution across Scotland follows those powerlines. There is very little transmission infrastructure down the west coast of Scotland, which means relatively few turbines there. It's often said that onshore wind developments in rural areas of Scotland are producing electricity for the cities to the south and England. But Morag Watson says, 'What is being built onshore in Scotland, is mostly what Scotland needs.' The overhead powerline system, she points out, is not just about delivering energy to the south, but also about sending off connections along the way to power homes and transport in the areas the lines pass through. Claim: Constraint payments are already costing millions and only going to rise – suggesting there is already too much onshore wind A report published earlier this year by the Renewable Energy Foundation found that wind farm constraints continue to rise, both in total volume and in cost. In 2024 the consumer paid more than £393 million in direct costs to discard 8.3 TWh of wind energy. This was a rise from the previous year's cost of £310 million. "Planning application data," the report said, 'shows that the, in our view, indefensibly high rewards for constraints continue to incentivise wind farm development in areas of the UK that have low demand and weak grid connection, resulting in high constraints. More than 98% of the total constrained volume, it noted, arises from Scottish wind farms. However, by far the biggest constraints wereapplied not to onshore wind, but offshore wind, including Seagreen. 'In particular, the offshore wind farm, Seagreen, whose majority owner is SSE, was alone responsible for 40% of the total volume of constraints. Seagreen is currently unsubsidised but 25% of its capacity has been awarded an as yet unimplemented Contract for Difference (CfD).' The most constrained onshore windfarms were Viking (Shetland), Dorenell (Moray), which is currently proposing an extension which would make the area home to the largest onshore array of turbines, Stronelairg (Fort Augustus), which claims to be on of Scotland's windiest windfarms, Bhlaraidh (Glenmoriston). Of these four, all but Dorenell are owned by SSE Renewables. However, Morag Watson points out that, relative to other impacts on electricity bills, like the fact gas prices set electricity prices 98% of the time in the UK (which has the highest electricity prices in Europe), the cost of curtailment is not that big. 'If you look," she saas, "at the cost of balancing the grid in the average electricity bill, which according to Ofgem is £929, £32 of that is the balancing, just under 3.5% and of that only part of that would be the cost of constraint payments. That's a vanishingly small part of your electricity bill. About £352 of your bill is driven by the wholesale cost of electricity – and that is driven by the gas price. So getting rid of the constraints and getting that gas down would be a really great thing for all of us.' Part of what is driving constraints is the pinch point around what's called the B6 boundary in the grid between Scotland and England, which has a theoretic transfer capability currently of around 6.7 GW. But it isn't the only problem. Arguably the B4 boundary, between the North of Scotland and South of Scotland transmission areas, which has a capacity of only 3.4GW is still more important. A recent blog published by UK Energy Research Centre, written by Professor Keith Bell and Callum MacIver of the University of Strathclyde looked at the 'impact of the role of transmission system availability (or rather unavailability) on rising curtailment costs in Britain'. They noted the importance of the B4 boundary. 'Lots of the wind in Scotland is located in the far North, including all of that new capacity from Seagreen, Viking and Moray East, totalling around 2.5 GW. The B4 boundary is therefore often the primary pinch point on the system.' The blog examines the impact of the failure to as yet build planned grid enhancement, especially the Peterhead to Drax undersea cable, which the system operator originally gave a delivery date of 2023, but is now not due till 2029. 'It seems clear we haven't built out enough North to South transmission capacity quickly enough, and that lies at the root of our current issues… but is there more to the story?' It goes on to point that an additional issue is that 'often, the real-time capacity on the B4 and B6 boundaries is well below the maximum level, often even below 50%.' The authors note also note that even these boundaries are not working to capacity. 'Not only have we, up to now, failed to add a 2 GW link across the congested Scottish boundaries, but B4 spent more than half of 2024 with an additional equivalent scale 2 GW reduction in operating capacity.' The reason for this? 'Ironically,' they write, 'it is due to the implementation of network upgrades'. This illustrates that in a grid undergoing significant works over the coming years, transmission is likely to vary. MacIver also looked at what the effect of additional network capacity across the B4 and B6 boundaries would have been and found that 'even a modest increase' across these boundaries of 500MW could have resulted in 'reduced curtailment costs by as much as 25% from the £1.65bn total in the 15 month period from the start of 2024 to the end of April 2025' and 'a 2000 MW uplift, in line with delivering the Peterhead Eastern Link project to its original schedule of 2023, then a full 73% of the thermal constraint costs could potentially have been avoided'. Overall, therefore, the constraint problem is an argument for more grid enhancement, particularly the development of undersea links, rather than less windfarms.
Scotsman
2 days ago
- Politics
- Scotsman
Scotland rejects climate change committee advice to cut livestock herds by a quarter
Farmers welcomed the move, saying grazing livestock are 'part of the solution, not the problem.' Sign up to our daily newsletter – Regular news stories and round-ups from around Scotland direct to your inbox Sign up Thank you for signing up! Did you know with a Digital Subscription to The Scotsman, you can get unlimited access to the website including our premium content, as well as benefiting from fewer ads, loyalty rewards and much more. Learn More Sorry, there seem to be some issues. Please try again later. Submitting... Scotland has dismissed official climate change advice to slash cattle and sheep herds by about a quarter for emissions targets. The announcement was made at the opening of the Royal Highland Show on Thursday. Advertisement Hide Ad Advertisement Hide Ad The Climate Change Committee (CCC), the official body offering advice to UK government and devolved nations recommended Scotland cut its livestock herds by 27 per cent by 2040 for Net Zero targets. The announcement was met with widespread concern among the farming community who have repeatedly said livestock numbers can be part of the solution when it comes to climate change mitigation. Speaking at the Quality Meat Scotland breakfast event at the show, rural affairs secretary Mairi Gougeon said: 'Let me be absolutely crystal clear, this government has no policy and will have no policy to cut livestock numbers.' Advertisement Hide Ad Advertisement Hide Ad Rural affairs secretary Mairi Gougeon The decision was welcomed by the National Farmers Union Scotland (NFU Scotland), who had urged ministers to reject the 'narrow proposals'. The move followed new greenhouse gas statistics showing agriculture emissions in Scotland have already fallen by 13.6 per cent since 1990, alongside publication of the CCC's latest recommendations on UK and Scottish carbon budgets. NFU Scotland vice president Duncan Macalister said: 'Farmers are already cutting emissions and increasing efficiencies - not by reducing output, but by improving how we produce food. 'It's about net zero, not zero emissions. Advertisement Hide Ad Advertisement Hide Ad 'Grazing livestock are part of the solution, not the problem - especially when managed well in pasture-based systems like ours. 'The government now needs to say clearly: how will future support reflect that reality and where does livestock fit in a climate-smart farming future?' Earlier this week, NFU Scotland met with the Climate Change Committee to discuss how farming can contribute to climate goals without undermining food production, biodiversity or rural livelihoods. The announcement comes after first minister John Swinney, ahead of attending the show himself, said: 'Our ambition is for Scotland to be a global leader in sustainable and regenerative agriculture. To do that we are working in partnership with the sector to transform the support we give to our farmers and crofters. Advertisement Hide Ad Advertisement Hide Ad 'The Royal Highland Show is our chance to showcase the absolute best of food produce, farming excellence and all of the industries that support our rural communities.' Mr Swinney pointed to the Scottish Government's commitment to sustainable food production, with more than £600 million annually, including maintaining direct support payments in the subsidy scheme, a system that is being phased out south of the border. Farmers are still in the dark about how the new four-tier subsidy scheme to replace the pre-Brexit CAP payments will work.
Yahoo
3 days ago
- Business
- Yahoo
Israel-Iran conflict exposes the true cost of North Sea decline
Israel's war with Iran is drawing attention to oil prices again, as the world watches nervously for disruptions to global supplies. The conflict has turned attention back to Labour's proposed ban on new drilling in the North Sea, one of the party's most eye-catching policies in last year's election. The pledge not to issue new oil and gas licences is based on 'science', according to Ed Miliband, the Energy Secretary, amid projections that licensing any new fields globally would be incompatible with net zero targets. In its election manifesto, Labour also argued that allowing more extraction from the North Sea 'will not take a penny off bills, cannot make us energy secure and will only accelerate the worsening climate crisis'. It was a premise that was questioned by some experts but won praise from others, as well as from environmental campaigners. But critics warn it risks leaving Britain more exposed to geopolitical crises. It's no secret that the North Sea is in decline. Whether Labour presses ahead with a ban on new licences or not, Britain's oil and gas output will continue to fall. But while that fall is inevitable, the rate of decline is not. The independent Climate Change Committee estimates that there will be demand for between 13bn and 15bn barrels of oil and gas in the UK over the next 25 years. Under current policies, less than one third of this overall demand is expected to be met by domestic production. That is equivalent to about 4bn barrels, with an estimated 3bn that could be exploited left underground. The balance would come from foreign imports. Mr Miliband has said boosting production would bring no material benefit to consumers because oil and gas prices are set by international markets and the output of the North Sea is too small to make a difference. But while many economists agree up to a point, some say this argument misses the importance of energy security. 'As long as you are a big importer, it doesn't make sense to reduce your production,' says Bjarne Schieldrop, analyst at SEB Research. 'What you need to do is to reduce your consumption as fast as possible. Energy has become more politically sensitive in recent years, with Russia using energy as a weapon. 'So actually, security of supply is extremely important. It's not just about the price.' Simon French, chief economist at Panmure Liberum, adds that if Britain and Europe produce more oil and gas collectively, they would be less dependent during a crisis on supplies shipped from the Middle East. In a global supply crunch, it is still unlikely that the UK would be at risk of shortages given its ability to outbid poorer countries for shipments when prices rise. However, French adds: 'Why would you leave yourself so exposed to doing that, when you potentially have the opportunity to divert your own domestic supply and give yourself more strategic resilience?' Producing more oil and gas domestically also brings other benefits in a crisis. In a scenario where the Iran-Israel conflict spreads, one of the biggest worries would be the prospect of shipping in the Strait of Hormuz seizing up. Around one fifth of the world's oil passes through this vital trade artery. 'If it's disrupted for any protracted period of time, then either global demand needs to fall substantially – which means a pretty deep recession – or the price of oil has to go up to ration it,' says French. In such a time, Britain would face higher oil and gas prices like every other country. But as a producer, it would also benefit from higher tax revenues, giving the Government more firepower to boost the flagging economy. For example, when the invasion of Ukraine sparked an energy crisis across Europe in 2022, the UK's tax take from company profits also jumped from £2.6bn to £9.8bn, providing valuable cash for schemes to support households with their bills. 'If the Exchequer feels that it needs to cap the price of energy, as it did previously, it rather helps if you're getting higher corporation tax receipts from the North Sea,' adds French. Another factor to consider is the impact the Government's windfall tax and licence ban will have on decommissioning, the process of safely retiring spent or uneconomical oil and gas wells. Analysts at Wood Mackenzie and Stifel have both argued that Labour's policies will speed up the rate of closures. This could make life harder for Rachel Reeves, the Chancellor, because oil and gas firms can offset decommissioning costs against their corporation tax bills. As a result, squeezing the North Sea may deal a double whammy to tax receipts by cutting output and accelerating decommissioning. This is partly because oil and gas firms continuously drill new wells alongside old ones to improve the economic viability of their portfolios as a whole. Without the ability to keep drilling new wells, it becomes harder to continue drilling old ones economically. 'If you were to continue to licence, then that extends the life cycle of some fields, and therefore decommissioning comes later in the fiscal horizon,' says French. 'So you would start to rebuild more fiscal headroom than you might otherwise have – and one thing the Chancellor definitely needs, going into the autumn, is more fiscal headroom.' Mr Miliband's claim that cutting domestic oil and gas production is good for the planet may also be in doubt. This is because unless Britain also slashes demand for these fuels substantially, it will simply have to import larger quantities from abroad. And that could actually end up generating higher carbon emissions overall, if we continue to rely on larger and larger amounts of liquefied natural gas (LNG) from the US and the Middle East. According to Rystad Energy, LNG can be up to 10 times more carbon intensive than pipeline gas. This is because while the emissions from burning it are the same, it requires energy to cool LNG to -160C and transport it by ship around the world. The analysis, reported by the BBC, found that piped gas from Norway generated around 7kg of CO2 per barrel, compared to an average of 70kg for LNG imported to Europe. Accelerating the decline of the North Sea may mean the UK also ends up with fewer green jobs. Academics at Robert Gordon University warned that oil and gas jobs were disappearing faster than new clean energy roles were being created as a result of the slower-than-expected deployment of wind farms. Whereas the offshore wind sector may only generate 29,000 jobs by 2030, some 58,000 disappear from oil and gas in the worst-case scenario. Paul de Leeuw, director of the university's Energy Transition Institute, said earlier this month: 'You have to wait pretty well to the back end of this decade before there's enough capacity in the renewables sector to take all the people coming out of oil and gas. 'It's a timing issue.' To avoid heavy job losses, researchers said Mr Miliband needed to either attract a larger share of turbine manufacturing to the UK or reverse his ban on new North Sea drilling licences to temporarily boost oil and gas production. For example, the report found that even if Mr Miliband hits his clean power targets, he could boost the number of green jobs in 2030 by boosting oil and gas production. Production of 500,000 barrels per day leads to just over 150,000 jobs – whereas production of 700,000 barrels creates around 200,000 jobs. The Department for Energy Security and Net Zero is consulting on a plan for the North Sea and says it envisions large numbers of jobs coming from offshore wind as well as more nascent industries such as carbon capture and hydrogen production. A department spokesman said: 'We are closely monitoring the situation in the Middle East. As the Chancellor said on Sunday: things are moving rapidly – we will follow that closely and will always do everything in our power to protect ordinary working people in this country. 'Increased domestic production of oil won't affect the price being set internationally. In fact, even if we extracted every drop of oil in the North Sea, this would not make any difference to the price people pay at the pump. 'Recent events underscore the importance of our mission to make the UK a clean energy superpower, to get off the roller-coaster of international fossil fuel markets, replacing it with clean homegrown power we control, to protect family and national finances.' Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
4 days ago
- Business
- Yahoo
Conflict in Iran is exposing the true cost of North Sea decline
For years, Labour's proposed ban on new drilling in the North Sea has been one of the party's most eye-catching policies. The pledge not to issue new oil and gas licences is based on 'science', according to Ed Miliband, the Energy Secretary, amid projections that licensing any new fields globally would be incompatible with net zero targets. In its election manifesto, Labour also argued that allowing more extraction from the North Sea 'will not take a penny off bills, cannot make us energy secure and will only accelerate the worsening climate crisis'. It was a premise that was questioned by some experts but won praise from others, as well as from environmental campaigners. But now, with a fresh conflict raging in the Middle East the policy is coming under scrutiny again, with critics warning that it leaves Britain more exposed to geopolitical crises. It's no secret that the North Sea is in decline. Whether Labour presses ahead with a ban on new licences or not, Britain's oil and gas output will continue to fall. But while that fall is inevitable, the rate of decline is not. The independent Climate Change Committee estimates that there will be demand for between 13bn and 15bn barrels of oil and gas in the UK over the next 25 years. Under current policies, less than one third of this overall demand is expected to be met by domestic production. That is equivalent to about 4bn barrels, with an estimated 3bn that could be exploited left underground. The balance would come from foreign imports. Mr Miliband has said boosting production would bring no material benefit to consumers because oil and gas prices are set by international markets and the output of the North Sea is too small to make a difference. But while many economists agree up to a point, some say this argument misses the importance of energy security. 'As long as you are a big importer, it doesn't make sense to reduce your production,' says Bjarne Schieldrop, analyst at SEB Research. 'What you need to do is to reduce your consumption as fast as possible. Energy has become more politically sensitive in recent years, with Russia using energy as a weapon. 'So actually, security of supply is extremely important. It's not just about the price.' Simon French, chief economist at Panmure Liberum, adds that if Britain and Europe produce more oil and gas collectively, they will be less dependent on supplies shipped from the Middle East in a crisis. In a global supply crunch, it is still unlikely that the UK would be at risk of shortages given its ability to outbid poorer countries for shipments when prices rise. However, French adds: 'Why would you leave yourself so exposed to doing that, when you potentially have the opportunity to divert your own domestic supply and give yourself more strategic resilience?' Producing more oil and gas domestically also brings other benefits in a crisis. In a scenario where the Iran-Israel conflict spreads, one of the biggest worries will be the prospect of shipping in the Strait of Hormuz seizing up. Around one fifth of the world's oil passes through this vital trade artery. 'If it's disrupted for any protracted period of time, then either global demand needs to fall substantially – which means a pretty deep recession – or the price of oil has to go up to ration it,' says French. In such a time, Britain would face higher oil and gas prices like every other country. But as a producer, it would also benefit from higher tax revenues, giving the Government more firepower to boost the flagging economy. For example, when the invasion of Ukraine sparked an energy crisis across Europe in 2022, the UK's tax take from company profits also jumped from £2.6bn to £9.8bn, providing valuable cash for schemes to support households with their bills. 'If the Exchequer feels that it needs to cap the price of energy, as it did previously, it rather helps if you're getting higher corporation tax receipts from the North Sea,' adds French. Another factor to consider is the impact the Government's windfall tax and licence ban will have on decommissioning, the process of safely retiring spent or uneconomical oil and gas wells. Analysts at Wood Mackenzie and Stifel have both argued that Labour's policies will speed up the rate of closures. This could make life harder for Rachel Reeves, the Chancellor, because oil and gas firms can offset decommissioning costs against their corporation tax bills. As a result, squeezing the North Sea may deal a double whammy to tax receipts by cutting output and accelerating decommissioning. This is partly because oil and gas firms continuously drill new wells alongside old ones to improve the economic viability of their portfolios as a whole. Without the ability to keep drilling new wells, it becomes harder to continue drilling old ones economically. 'If you were to continue to licence, then that extends the life cycle of some fields, and therefore decommissioning comes later in the fiscal horizon,' says French. 'So you would start to rebuild more fiscal headroom than you might otherwise have – and one thing the Chancellor definitely needs, going into the autumn, is more fiscal headroom.' Mr Miliband's claim that cutting domestic oil and gas production is good for the planet may also be in doubt. This is because unless Britain also slashes demand for these fuels substantially, it will simply have to import larger quantities from abroad. And that could actually end up generating higher carbon emissions overall, if we continue to rely on larger and larger amounts of liquefied natural gas (LNG) from the US and the Middle East. According to Rystad Energy, LNG can be up to 10 times more carbon intensive than pipeline gas. This is because while the emissions from burning it are the same, it requires energy to cool LNG to -160C and transport it by ship around the world. The analysis, reported by the BBC, found that piped gas from Norway generated around 7kg of CO2 per barrel, compared to an average of 70kg for LNG imported to Europe. Accelerating the decline of the North Sea may mean the UK also ends up with fewer green jobs. Academics at Robert Gordon University warned that oil and gas jobs were disappearing faster than new clean energy roles were being created as a result of the slower-than-expected deployment of wind farms. Whereas the offshore wind sector may only generate 29,000 jobs by 2030, some 58,000 disappear from oil and gas in the worst-case scenario. Paul de Leeuw, director of the university's Energy Transition Institute, said earlier this month: 'You have to wait pretty well to the back end of this decade before there's enough capacity in the renewables sector to take all the people coming out of oil and gas. 'It's a timing issue.' To avoid heavy job losses, researchers said Mr Miliband needed to either attract a larger share of turbine manufacturing to the UK or reverse his ban on new North Sea drilling licences to temporarily boost oil and gas production. For example, the report found that even if Mr Miliband hits his clean power targets, he could boost the number of green jobs in 2030 by boosting oil and gas production. Production of 500,000 barrels per day leads to just over 150,000 jobs – whereas production of 700,000 barrels creates around 200,000 jobs. The Department for Energy Security and Net Zero is consulting on a plan for the North Sea and says it envisions large numbers of jobs coming from offshore wind as well as more nascent industries such as carbon capture and hydrogen production. A spokesman for the department was approached for comment. Sign in to access your portfolio
Telegraph
4 days ago
- Business
- Telegraph
Conflict in Iran is exposing the true cost of North Sea decline
For years, Labour's proposed ban on new drilling in the North Sea has been one of the party's most eye-catching policies. The pledge not to issue new oil and gas licences is based on 'science', according to Ed Miliband, the Energy Secretary, amid projections that licensing any new fields globally would be incompatible with net zero targets. In its election manifesto, Labour also argued that allowing more extraction from the North Sea 'will not take a penny off bills, cannot make us energy secure and will only accelerate the worsening climate crisis'. It was a premise that was questioned by some experts but won praise from others, as well as from environmental campaigners. But now, with a fresh conflict raging in the Middle East the policy is coming under scrutiny again, with critics warning that it leaves Britain more exposed to geopolitical crises. Energy security It's no secret that the North Sea is in decline. Whether Labour presses ahead with a ban on new licences or not, Britain's oil and gas output will continue to fall. But while that fall is inevitable, the rate of decline is not. The independent Climate Change Committee estimates that there will be demand for between 13bn and 15bn barrels of oil and gas in the UK over the next 25 years. Under current policies, less than one third of this overall demand is expected to be met by domestic production. That is equivalent to about 4bn barrels, with an estimated 3bn that could be exploited left underground. The balance would come from foreign imports. Mr Miliband has said boosting production would bring no material benefit to consumers because oil and gas prices are set by international markets and the output of the North Sea is too small to make a difference. But while many economists agree up to a point, some say this argument misses the importance of energy security. 'As long as you are a big importer, it doesn't make sense to reduce your production,' says Bjarne Schieldrop, analyst at SEB Research. 'What you need to do is to reduce your consumption as fast as possible. Energy has become more politically sensitive in recent years, with Russia using energy as a weapon. 'So actually, security of supply is extremely important. It's not just about the price.' Simon French, chief economist at Panmure Liberum, adds that if Britain and Europe produce more oil and gas collectively, they will be less dependent on supplies shipped from the Middle East in a crisis. In a global supply crunch, it is still unlikely that the UK would be at risk of shortages given its ability to outbid poorer countries for shipments when prices rise. However, French adds: 'Why would you leave yourself so exposed to doing that, when you potentially have the opportunity to divert your own domestic supply and give yourself more strategic resilience?' Fiscal firepower Producing more oil and gas domestically also brings other benefits in a crisis. In a scenario where the Iran-Israel conflict spreads, one of the biggest worries will be the prospect of shipping in the Strait of Hormuz seizing up. Around one fifth of the world's oil passes through this vital trade artery. 'If it's disrupted for any protracted period of time, then either global demand needs to fall substantially – which means a pretty deep recession – or the price of oil has to go up to ration it,' says French. In such a time, Britain would face higher oil and gas prices like every other country. But as a producer, it would also benefit from higher tax revenues, giving the Government more firepower to boost the flagging economy. For example, when the invasion of Ukraine sparked an energy crisis across Europe in 2022, the UK's tax take from company profits also jumped from £2.6bn to £9.8bn, providing valuable cash for schemes to support households with their bills. 'If the Exchequer feels that it needs to cap the price of energy, as it did previously, it rather helps if you're getting higher corporation tax receipts from the North Sea,' adds French. Decommissioning costs Another factor to consider is the impact the Government's windfall tax and licence ban will have on decommissioning, the process of safely retiring spent or uneconomical oil and gas wells. Analysts at Wood Mackenzie and Stifel have both argued that Labour's policies will speed up the rate of closures. This could make life harder for Rachel Reeves, the Chancellor, because oil and gas firms can offset decommissioning costs against their corporation tax bills. As a result, squeezing the North Sea may deal a double whammy to tax receipts by cutting output and accelerating decommissioning. This is partly because oil and gas firms continuously drill new wells alongside old ones to improve the economic viability of their portfolios as a whole. Without the ability to keep drilling new wells, it becomes harder to continue drilling old ones economically. 'If you were to continue to licence, then that extends the life cycle of some fields, and therefore decommissioning comes later in the fiscal horizon,' says French. 'So you would start to rebuild more fiscal headroom than you might otherwise have – and one thing the Chancellor definitely needs, going into the autumn, is more fiscal headroom.' Carbon emissions Mr Miliband's claim that cutting domestic oil and gas production is good for the planet may also be in doubt. This is because unless Britain also slashes demand for these fuels substantially, it will simply have to import larger quantities from abroad. And that could actually end up generating higher carbon emissions overall, if we continue to rely on larger and larger amounts of liquefied natural gas (LNG) from the US and the Middle East. According to Rystad Energy, LNG can be up to 10 times more carbon intensive than pipeline gas. This is because while the emissions from burning it are the same, it requires energy to cool LNG to -160C and transport it by ship around the world. The analysis, reported by the BBC, found that piped gas from Norway generated around 7kg of CO2 per barrel, compared to an average of 70kg for LNG imported to Europe. Economic benefits Accelerating the decline of the North Sea may mean the UK also ends up with fewer green jobs. Academics at Robert Gordon University warned that oil and gas jobs were disappearing faster than new clean energy roles were being created as a result of the slower-than-expected deployment of wind farms. Whereas the offshore wind sector may only generate 29,000 jobs by 2030, some 58,000 disappear from oil and gas in the worst-case scenario. Paul de Leeuw, director of the university's Energy Transition Institute, said earlier this month: 'You have to wait pretty well to the back end of this decade before there's enough capacity in the renewables sector to take all the people coming out of oil and gas. 'It's a timing issue.' To avoid heavy job losses, researchers said Mr Miliband needed to either attract a larger share of turbine manufacturing to the UK or reverse his ban on new North Sea drilling licences to temporarily boost oil and gas production. For example, the report found that even if Mr Miliband hits his clean power targets, he could boost the number of green jobs in 2030 by boosting oil and gas production. Production of 500,000 barrels per day leads to just over 150,000 jobs – whereas production of 700,000 barrels creates around 200,000 jobs. The Department for Energy Security and Net Zero is consulting on a plan for the North Sea and says it envisions large numbers of jobs coming from offshore wind as well as more nascent industries such as carbon capture and hydrogen production.
