UK Government to Unveil North Sea Drilling Strategy Changes

Plans to ease restrictions on new oil and gas drilling in the North Sea will be introduced on Wednesday as part of the UK government’s North Sea Strategy. Chancellor Rachel Reeves will present the strategy during her Budget speech, with the Department for Energy Security and Net Zero expected to release a detailed document shortly thereafter.

The upcoming strategy is anticipated to confirm the government’s intention to lift its moratorium on new drilling activities. This adjustment will likely enable the government to justify new drilling areas as extensions of existing infrastructure. This concept was initially proposed during the Labour Party conference held in September.

Although the results of the North Sea review will not directly address the controversial Rosebank field, which Ed Miliband opposed during his tenure in opposition, the broader relaxation of regulations is believed to enhance the likelihood of Rosebank receiving approval. The project is currently undergoing a separate regulatory and judicial review process.

Details of the Strategy and Industry Response

Historically, tiebacks have been employed for minor extensions of existing oil and gas fields into unlicensed seabed areas. However, Rosebank’s scale necessitates its own production infrastructure, prompting concerns regarding its environmental implications.

The oil and gas sector has been actively lobbying for changes to the windfall tax, currently set at 78% and due to expire in 2030. Industry representatives argue that the tax has been detrimental, leading to a significant decline in investment, with operators increasingly seeking opportunities in regions with more favorable tax regimes. According to research from Robert Gordon University in Aberdeen, approximately 1,000 jobs are being lost each month in the sector.

It is understood that any approval for tiebacks would be perceived as insufficient unless accompanied by at least some adjustments to the tax structure. The government may consider implementing a “cap and floor” mechanism, which would activate if oil prices surged to levels experienced following the Russian invasion of Ukraine. The industry contends that the recent decreases in crude oil prices indicate that the “windfall” period has concluded, and tax policies should adapt accordingly.

As the government prepares to announce these changes, the implications for the North Sea energy sector and the broader economy are significant. The balance between energy production, environmental concerns, and economic stability remains a pivotal issue for policymakers in the UK.