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The UK government is pushing ahead with plans to halt new oil and gas exploration licences but left room for a “pragmatic” approach to production in a move welcomed by the industry.
In a consultation set out on Wednesday confirming an election manifesto pledge, the government said it would issue “no new licences to explore new oil and gasfields”, a policy criticised by the GMB union as “madness”.
Ministers said current plans for global oil and gas production were “not compatible” with the drive to limit global warming to below 1.5 degrees, and they were trying to develop cleaner energy industries instead.
However, the consultation also left room for the government to take a flexible approach to “tiebacks”, in which new fields can be drilled via adjacent existing fields. This measure was welcomed by the oil and gas industry, which has warned curbing licences risks increasing the UK’s reliance on imports.
According to the consultation documents, ministers are seeking to find out “how we might ensure that our regulatory regime can support activity where it is needed to deliver the government’s broader strategic priorities”.
One industry source said: “A commonsense approach towards resources that are available is to be welcomed.”
Martin Copeland, chief financial officer at North Sea producer Serica Energy, said: “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 of how this can be translated into a pragmatic and workable new regime for the future of the North Sea.”
Figures close to the process said the consultation had been delayed by several weeks because of jitters in Downing Street about how the ban on new exploration licences would be seen in the White House, after President Donald Trump said he wanted American oil companies to “drill, baby, drill”.
The government published the licensing consultation alongside a plan for a new tax regime from 2030 when the current windfall tax levy, introduced in 2022 as prices surged following Russia’s full-scale invasion of Ukraine, is due to expire.
Under the plans, the sector would return to paying only the permanent taxes — currently amounting to a rate of about 40 per cent — but they would automatically pay more if wholesale prices rose to unusual levels.
The aim is to give the industry more certainty about what happens during price shocks. Companies complained that introducing one-off windfall taxes undermined investor confidence.
“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 consultation papers.
The future of the North Sea is a major challenge for the Labour government and energy secretary Ed Miliband. The sector supports more than 200,000 UK jobs, according to trade group Offshore Energies UK.
Despite efforts to move to lower-carbon technologies, oil and gas accounted for 75 per cent of the UK’s total energy demand in 2023, with petrol cars, gas-fired boilers and gas-fired power stations still playing a huge role.
But even without the transition to renewable energy, the North Sea is in decline, with oil majors seeking opportunities elsewhere in the world. UK oil production hit a record low of 34mn tonnes in 2023, about a quarter of its peak in 1999.
The government’s plans have been criticised by GMB union — one of the Labour party’s most generous donors. “For as long as we need oil and gas, banning new licences never made any sense. In the new geopolitical reality it is madness,” said GMB general secretary Gary Smith, one of Britain’s most powerful trade union chiefs, ahead of the consultation.
David Whitehouse, chief executive of Offshore Energies UK, said: “We still have oil and gas reserves in our offshore waters and we should use them responsibly alongside renewable energy. We must get this right and this means meaningful engagement.”
