Last week an Oxford Net Zero report laid out our views on the future for the global oil and gas sector. Helpfully for stimulating conversation, the next day the Tony Blair Institute (TBI) released their own policy brief discussing the challenges for the current UK energy strategy.

TBI’s brief suggests there are missed opportunities for UK oil and gas, which, if unlocked, would benefit the wider economy via energy security guarantees, private investment and growth, and increased tax revenues. They argue the UK should relax 2030 clean energy commitments and reduce the political barriers to new oil and gas investments – claiming these revisions would not unduly affect long-running net zero ambition in the UK. 

These arguments rely on an overly simplified view of the UK’s energy supply-side, and risk giveaways for oil and gas with limited benefits for the UK economy. They are right that the UK’s energy strategy must strike a balance between maximising the returns on remaining fossil fuel assets today and developing future non-fossil assets for tomorrow.

There are several coordination challenges for net-zero-aligned energy supply. It’s not as simple as deploying renewables, and we do need to worry about the grid, local capacity in distribution networks, energy storage, intermittency, and financing electrification at the demand-side; as well, of course, as the reality on the ground in the rest of the world.

Naturally, the politics of these issues means that there are many possible framings for the future of oil and gas. Our recent research hints at several.

One credible future looks like this – ask license applicants to justify their proposal as viable, given the wind down of UK oil and gas more broadly, explain how the UK’s exposure to energy imports would meaningfully change under their proposal, and highlight how their proposal aligns with delivering net zero.

If they can do this, play ball. 

This would be no easy ask for oil and gas producers. Our extracted oil and gas is largely sold overseas, weakening any claim that new extraction would support energy independence. And the oil and gas sector does not currently couple its business cases for net zero technology deployment with oil and gas expansion. But together they are key to demonstrating that any new oil and gas projects are not in conflict with our long-term energy and climate strategy.

It is also no easy task for the UK Government, who have assumed a portion of revenue from North Sea assets will be collected and available to the exchequer in the coming decades – this is something which the Treasury will want to protect. However, since the North Sea basins are already well known to be mature, and hence the tax take dwindling, the relative importance of this will decline over time as well.

From an energy strategy perspective, gas remains important for the UK given our reliance on it as a load-balancing fuel in the power sector, and in at least some home heating and industrial settings in the coming decades.

The UK’s exposure to gas imports is an important energy security challenge. This risk could be partly managed through North Sea supply if we also manage the risk of undermining climate policy through continued extraction. Oil will also become less strategic for the UK over time, although it will play a key role in the transition itself.

But arguments for new oil are more hampered by the fact that this extraction is likely to be sold overseas, reducing any case that it is in support of UK energy independence.  

If changes to the energy strategy were accompanied by an update to the way we appraise oil and gas licenses, we would provide a world-leading framework for oil and gas to contribute to both the short- and long-term energy supply future for the UK.  

There are several coordination challenges for net-zero-aligned energy supply. It’s not as simple as deploying renewables, and we do need to worry about the grid, local capacity in distribution networks, energy storage, intermittency, and financing electrification at the demand-side; as well, of course, as the reality on the ground in the rest of the world.

But these aren’t reasons to take a backward step on UK oil and gas, particularly when the majority of currently extracted products are sold overseas with limited benefit to UK taxpayers. 

If changes to the energy strategy were accompanied by an update to the way we appraise oil and gas licenses, we would provide a world-leading framework for oil and gas to contribute to both the short- and long-term energy supply future for the UK.  

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