North Sea Oil and Gas: Drilling for Dwindling Resources in the Pursuit of “Energy Security”

 Come the last day in July 2023, British Prime Minister Rishi Sunak granted hundreds of new oil and natural gas exploration licenses in the North Sea- to the predictable dismay of environmental activists, but also to the resounding approval of the fossil fuel industry and its many financial backers and political acolytes. This decision was cleverly presented as a climate-friendly action, backed by an analysis by the government-owned North Sea Transition Authority (NSTA) which apparently confirmed that North Sea gas has “around one-quarter the carbon footprint of imported liquified natural gas.” Extending the benefits to the wider economy, the UK Government claimed that investment in the North Sea oil and gas industry would “continue to unlock new projects, protect jobs, reduce emissions and boost UK energy independence.”

With all such ambitious projects that promise much, a reality check is required, as delivery may not necessarily live up to expectations. To establish context, it is worth revisiting the history of the North Sea oil and gas industry. Discovery of natural gas in the Groningen Field in the Netherlands in May 1959 was the catalyst for exploration of the nearby North Sea. Exploration and exploitation of the UK/Norway Continental Shelf was kickstarted by the launch of the first licensing round by the UK Government in 1964, after the Continental Shelf Act 1964 had defined the British and Norwegian shares of the shelf. 

BP took pole position with Licence P001, awarded in September 1964. Initial attempts at exploration were unpromising. Amoseas, a Chevron-Texaco joint venture, drilled what turned out to be a dry well in the Southern Gas Basin in 1964. In the same basin, Sea Gem, a BP drilling rig, discovered gas in the West Sole Field in December 1965, only to capsize soon off the Lincolnshire coast on Boxing Day, with the loss of 13 lives, before any gas could come ashore. Commercial gas production commenced in 1966, and the first natural gas was brought ashore at Easington Terminal in Yorkshire in March 1967. 

Oil discoveries were to follow. Phillips Petroleum discovered Ekofisk oil field in the Norwegian sector in October 1969, and Amoco struck “black gold” in the Montrose Field, east of Aberdeen, soon after. BP then located the gigantic Forties Field, with 2.5 billion barrels of recoverable oil resources, in the central North Sea in October 1970. Commercial oil production had to wait until November 1975, when oil was first piped ashore through the Forties pipeline. Aberdeen was transformed from a granite producer to the ‘Oil Capital of Europe’. Before long, takings from the UK Continental Shelf transformed a net oil importer into a net oil exporter, with oil fields in Southern North Sea, Irish Sea, Central North Sea, Moray Firth, Northern North Sea, and West of Shetland. 

In its heyday, North Sea oil and natural gas boosted public finances and became a major employer in Scotland. Challenging conditions in the North Sea also contributed to the Piper Alpha disaster of July 1968, when 167 men died in the world’s worst off-shore disaster. In recent years, a steady decline in productive capacity has seen the decommissioning of many oil and gas fields. Tax revenues peaked in real terms in 1984-85. According to the Office for Budget Responsibility, North Sea oil and gas receipts are forecast to average £8.6 billion between 2023-23 and 2027-28, but “relative to the size of the economy these figures remain modest by historical standards.” Despite the current official enthusiasm for North Sea hydrocarbons, geophysicists state that most of the UK/Norway Continental Shelf is in a “mature phase of exploration”, a technical term for “fast approaching sell-by date.” 

Climate action demands mitigation of carbon dioxide emissions from fossil fuels. Even as the oil and gas industry seeks to maximise oil and gas extraction from what remains, it has thus adopted carbon capture, utilisation and storage (CCUS) technology to sequester waste carbon dioxide in subsurface storage sites. 

Britain’s relationship with its offshore hydrocarbon resources in the North Sea contrasts with that of Norway. The British National Oil Company was first to be privatised in 1982, followed by British Gas Corporation in 1986, before the UK Government privatised its last remaining stake in BP in 1987. Since 2014, private equity companies, mostly backed by American investors, have become involved in the sector, engaging in merger and acquisition activities. On the other hand, Norway’s surplus oil and gas revenues are invested in the state-owned Government Pension Fund Global, created in the 1990s, so that current and future generations of Norwegians can benefit from the country’s oil wealth. The fund accounts for as much as 20 per cent of the government’s budget. 

The recent surge of interest in the Northern North Sea and West of Shetland will not automatically enhance Britain’s energy security. British access to drilled hydrocarbons is not guaranteed, and a shortage of refineries and lack of storage capacity means that the UK is unlikely to reap the full benefits of any new drillings. The UK Government’s latest decision will also undoubtedly tarnish its supposedly green credentials in the eyes of the global community and thereby undermine its bargaining position. As usual, events will eventually speak for themselves.

Ashis Banerjee.