There is a strong case for subsidising North Sea drilling
3 min read
Are oil and gas industry representatives making the wrong case for maintaining production in the North Sea?
This was my reflection after the Select Committee hearing on 17 June discussed the question of subsidies. The term subsidy was used to describe government support in the UK for Carbon Capture, Usage, and Storage. And witnesses used terms including support, level playing field, carbon credits and tax changes, all of which represent forms of subsidy when describing what’s needed by UK producers in the North Sea.
I was reminded when listening to the industry representatives that other countries subsidise their oil and gas industries, so it makes sense for us to do so too.
Evidence presented to the Committee shows that the UK’s oil and gas fields are super mature. Remaining UK reserves are therefore more difficult and more expensive to extract than elsewhere.
The logic of the situation is that if we are to maintain UK production levels, the government will have to provide support or subsidies in one way or another.
And from the evidence presented to the Committee, it makes sense to subsidise our own production, as other countries do, to contribute to our energy security. This is especially true in the second energy shock in four years, but true over a much longer period of time, as oil and gas shocks have been with us for many decades.
The argument we heard on 17 June was that changing the tax system would generate higher theoretical tax revenues. But tax revenues are difficult to predict because they depend on the price of oil and gas, which, as we are seeing, is highly volatile.
We subsidise electricity generation in the UK in nuclear and renewables through CfDs and guaranteed strike prices. That's the right thing to do for our electricity because it is critical for our energy security, so why wouldn't we take the same subsidised approach with oil and gas?
Which brings me to why we really should subsidise.
In my view, the stronger argument for subsidy is that it supports jobs, communities and supply chains, which are essential for those who depend on the industry for their livelihoods. The same workers, communities and businesses in oil and gas are also essential for the energy transition to be successful.
There is also a case for UK gas production to be maintained as demand falls to reduce our dependence on imports and improve our energy and national security. This point was expressed well by David Whitehouse from OEUK at the Committee session.
My conclusion from what we heard on 17 June was that the UK oil and gas sector would have a stronger case in seeking changes from government if it openly called for subsidies or support for reasons of job and community security, energy security and national security, rather than claiming that it can deliver higher tax revenues.
I was surprised this wasn’t the main argument that the industry representatives made to the Energy Security Select Committee on 17 June.
Labour MP for Sefton Central and chair of the Energy Security and Net Zero Committee
