The truth about the energy transition and the need for affordable secure energy with exploration & production to fill the gap

Today I gave the following speech at the ENVEXX oil and gas conference in London…

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Good afternoon. I’m delighted to be here today – thank you to Mike for inviting me.

The new dislocation in the energy markets has Ed Miliband and others jumping up and down about how this underlines the need to get off gas and move to clean energy as fast as possible, just as they did when Russia invaded Ukraine in 2022.

He was wrong then and is wrong again now.

Let me begin with the Government’s current strategy. At its core, the policy is presented as a coherent plan to rapidly decarbonise the power system, electrify large parts of the economy, and replace fossil fuels with renewable energy, primarily wind and solar.

Supported by batteries, interconnection and increasingly complex system management, while at the same time discouraging domestic oil and gas production on the assumption that declining demand will make it redundant.

On the surface this sounds reasonable, even attractive, because it promises cleaner energy, lower emissions and lower costs. But when you look more closely at the engineering realities, the economics of the system as a whole, and the real-world consequences that are already emerging, the contradictions become very hard to ignore.

In fact, what we’re doing risks locking in the exact outcomes policymakers say they want to avoid, namely long-term dependence on oil and gas, rising costs, a steady erosion of domestic industrial capability, and an energy system that becomes less rather than more secure.

The first and most fundamental problem is that we’re not actually reducing our dependence on oil and gas at all, we are simply choosing to import it instead of producing it ourselves.

Even under the most optimistic projections the UK will continue to use significant volumes of oil and gas for decades to come.

For example, the government’s plan to electrify homes requires the installation of 600,000 heat pumps per year to get people away from gas and heating oil. At this rate it will take 47 years to achieve remove oil and gas use from domestic heating! And we’re no-where near meeting that installation target so in practice it will take even longer.

What does the government have to say about this long term reliance on oil and gas? Absolutely nothing. Not a single thing. Just constant repetition of the “get off gas” mantra.

Worse, we’re actively suppressing domestic production, sending a clear signal to investors that the North Sea is closed for business.

This creates a black hole at the heart of policy, because we’re locking in continued demand for hydrocarbons while dismantling our ability to supply them. The inevitable result is a greater reliance on imports, higher exposure to international markets, and loss of control over a critical part of our energy system.

That’s not a transition, it’s a deliberate choice to increase vulnerability.

At the same time, this approach is already having visible economic consequences, particularly in the oil and gas sector where the pace of decline is not gradual or managed but abrupt and increasingly damaging.

We’re seeing around a thousand highly paid, highly skilled jobs being lost each month in regions where alternative opportunities are limited and where the energy sector has long been a cornerstone of the local economy.

These are engineers, geoscientists, offshore technicians… people with decades of accumulated expertise. Once those skills are lost they are extraordinarily hard to rebuild.

The idea that these jobs will be replaced by equivalent roles in renewables does not stand up to scrutiny. Almost all the jobs in the renewable energy supply chain are located overseas, and the few based here attract much lower wages than typical oil and gas jobs.

So we’re not managing a transition from one industry to another, we’re presiding over a decline in domestic capability, replacing it with an increased reliance on imports.

Renewable energy is presented as a route to energy independence. But this too is misleading. Wind and solar are weather-dependent – they generate electricity when it’s windy and sunny, not necessarily when we need it.

Managing that mismatch requires a whole set of additional measures, including backup generation, which in practice still means gas-fired power stations, or large-scale storage which remains technologically and economically constrained.

It also requires a major expansion of the transmission network to move power across the country from wind places to demand centres, and increasingly complex balancing actions to keep the system stable in real time, when clouds and gusts of wind create variability that must be managed.

All of these come at a cost, and yet most of the public discussion focuses narrowly on a measure known as the levelised cost, which artificially flatters renewables by excluding many of these expenses.

The levelised cost is effectively the price at the station gate. It’s not the cost that a consumer must pay to receive electricity on demand. If we only paid the levelised cost of wind and solar, plus some cost for delivery, we would only receive electricity when it’s wind or sunny.

What actually matters is the full system cost paid by the consumer. This has to cover the cost of building renewables and connecting them to the grid, the cost of delivering electricity across the grid to consumers, the cost of backup when they’re not able to run, and the costs to balance the grid and keep it operating correctly.

In a renewables-dominated grid these costs are much higher than for gas-fired and other forms of conventional generation such as nuclear.

Yet policymakers cling to the argument that renewables are cheap because the wind and sun are free. Well wind and sun may be free but the equipment to convert them into electricity and deliver it to consumers consistently is very expensive.

So wind and solar electricity are not cheap and they do not and can not provide energy security.

This is even more apparent when we consider that electricity accounts for just under 20% of UK energy demand, so a huge electrification programme would be needed. Yet there is no consistent strategy to deliver that across heating, transport and industry and what little there is will take decades to realise.

Another strategic dimension is the extent to which the government’s energy transition relies on global supply chains that are heavily concentrated in China.

From solar panels to batteries to the processing of critical minerals, we increasingly depend on imports from a single country that is not necessarily aligned with our broader strategic interests.

We’re replacing one form of dependency – on imported fossil fuels from countries which are for the most part close allies such as Norway and the US, with another dependency, this time with a country which is not.

Not only is China not a close ally or even a friendly state, there are significant ethical and environmental concerns about the supply chains that underpin the energy transition.

There are significant environmental harms associated with the vast amounts of metals that have to be dug out of the ground and processed, using a great deal of energy and toxic chemicals.

The worst are from the production of rare earth magnets used in wind turbines and electric cars but not conventional generators or petrol and diesel cars – these are so polluting to produce that no country other than China allows it to be done at an industrial scale.

There are also ethical concerns ranging from the use of child labour in Congolese cobalt mines, to the competition for water for human use and agriculture from lithium production in South America and manganese production in South Africa. And of course ongoing concerns around the use of forced labour in China.

So the government’s energy policy is to replace reliable conventional electricity generation with unreliable wind and solar. To replace reliance primarily on Norway and the US for oil and gas for a reliance on China for renewables. To swap domestic carbon dioxide emissions for overseas emissions and other forms of pollution and social harms.

And to simply ignore the many many years it would take to replace current uses of oil and gas with electricity. For the risks associated with this lengthy transition there is simply no plan.

So the real question is why is Ed Miliband and the government are determined to ignore the oil and gas beneath our feet, or at least beneath our waters.

We are told that the North Sea is a mature basin as if that means it’s no longer worth bothering with. More oil and gas has been produced in the past than can be produced in the future so we shouldn’t try to extract it. That the oil and gas is sold on the international markets so there’s no point producing it since we will receive no benefit.

Being mature does not mean being effectively dead. I’m in my fifties and by most people’s standards would be considered mature – in age terms at least! But I’m far from retirement and even further away from death from old age. A mature person is not written off as not worth bothering with. The same applies to our North Sea oil and gas resources.

Similarly, being “in decline” is not a reason to discard our domestic resources. The moment a new mine or reservoir is opened, it begins to decline, yet nobody would begin production on day 1 and end it on day 2 because of decline.

The reality is that there is plenty more oil and gas under the sea, and we absolutely can benefit from it.

Norway has made significant finds in the past year, adjacent to the UK sector. The border between us is political not geological – some of those reservoirs almost certainly extend into the UKCS, but with a drilling ban we can’t verify that.

And technological developments continually increase the amount of hydrocarbons that can be economically produced from known resources.

With a more favourable fiscal regime, the removal of the drilling ban, and a more supportive regulatory environment, we could slow or even reverse the current decline in UK oil and gas production.

All of the gas produced comes onto the GB gas grid – that’s simply where the pipes go. It is not sold on international markets.

It is also not sold at an international price. Yes, the British gas index, NBP is linked to overseas price indices – gas now trades globally – but it is not sold AT these other prices. NBP tends to trade at a discount to the main European market.

If we produce more of our own gas we will displace imported LNG which is the most expensive source of gas we buy. LNG attracts liquefaction, shipping and regas costs which our own production does not. Since our gas price is based on the marginal source of gas delivered into the British market, the more we produce the less often LNG will set the price, particularly in the summer when demand is lower. This will result in real reductions in prices.

On top of this, the UK earns significant tax revenues not just from oil and gas producers but also from the extensive UK-based supply chains that support them. This is worth £billions per year and could fund price support for energy bills or reductions in the fuel duty.

The picture with oil is similar except much of the oil we produce has to go overseas to be refined. This is because we only have four refineries left, in part due to our high energy costs. However, the tax position is the same – producing oil brings significant revenues to the Treasury.

So what should the government do?

First – abolish the windfall tax on oil and gas production, lift the drilling ban and create a more supportive regulatory regime that incentivises the development of new oil and gas fields

Second – incentivise long term fixed price gas supply agreements with the US and Norway rather than the short-term floating deals that dominate the market. Locking in a portion of our demand for 15-20 years will reduce our exposure to price shocks.

Third – cancel the carbon tax which makes energy expensive, harming British households and industry. This is a particular challenge for refineries which have to compete with imported products that are not subject to similar taxes. Incentivising upgrades to our aging refineries would also be a good step.

Forth – cancel the expensive legacy Renewables Obligation scheme, and the latest Contracts for Difference round whose contracts have not yet been signed and suspend future subsidy auctions until prices are under control. And move all subsidy costs from bills to taxation. This would immediately reduce energy costs for homes and businesses.

And Fifth – cut fuel duty. Half the pump price of petrol is tax: fuel duty and VAT. We actually pay VAT ON the fuel duty. Cutting this will again have an immediate impact on energy costs and boost the economy

The reality is we will use oil and gas for decades to come. Instead of fantasising about an unrealistic clean power utopia we need to take concrete pragmatic steps to secure our energy supplies based on the energy we actually need. And domestic oil and gas production is at the heart of this.

Thank you