Sunak’s new oil and gas licences face a fight against the odds

Just Stop Oil (JSO) has taken the news that the government will issue hundreds of new North Sea oil and gas licences badly. The Prime Minister is ‘worse than a war criminal,’ according to JSO. But the reality is that Sunak’s announcement is a smart move: oil and gas and its derivative industries are still some of the UK’s most important and some of its largest export industries. 

The UK still relies heavily on oil and gas, not only for individual and commercial transport but also to heat most of our homes and to produce our food (both to operate farming machinery and make fertilisers and pesticides). We also use it for ingredients for our petrochemical, pharmaceutical and plastics industries and to produce concrete, bitumen and other key substances used to build our towns and cities. But most importantly, about 40 per cent of UK electricity comes from gas-fired power stations. 

All of us rely on electricity produced using gas. Windfarms are little use without gas-fired backup electricity. When the wind drops, gas-fired electricity makes up the shortfall in renewable production. Unlike gas, nuclear power stations can’t be quickly ramped up and down to make up for a decrease or increase in wind power. Last year, gas provided just under 40 per cent of UK electricity while wind provided just under 30 per cent. 

But there are still some hurdles to jump before any new oil and gas will be flowing through our pipes. The first question is whether the government also intends to drop its eye-watering 75 per cent ‘windfall taxes’ on oil and gas companies, presently in place until 2028. Without a change in this tax, there is a high probability that the new licences will be purchased but not used until after 2028. So much, then, for the government’s claim that the new licences are necessary for UK energy security. 

There is also the question of who will finance and insure these new projects. Nigel Farage’s bank account with Coutts was closed because of the Environment, Social and Governance (ESG) regulation mindset that has taken hold of financial institutions. Other individuals and businesses have suffered a similar fate. NatWest, which owns Coutts, isn’t only targeting politicians. The bank announced back in February, under Dame Alison Rose’s leadership, that it would stop lending to the UK oil and gas sector. The bank went further and said that after 31 December 2025 they would not renew, refinance or extend existing arrangements. That is less than 2 years away. 

So NatWest, the UK’s fourth largest bank and still about 40 per cent publicly-owned, plans to pull the plug on this critical industry just as the government wants us to convert to electric vehicles, electric heat pumps, computer screen-based employment, cloud-based document storage, electronic payment systems and even digital money. Yet none of this works without a reliable source of electricity.

Admittedly Nat West’s oil and gas funding is less than 1 per cent of their outstanding exposures, but firms bidding for the new North Sea licences will find that other banks and investment companies may have similar policies. Mark Carney’s Glasgow Financial Alliance for Net Zero (GFANZ) has signed up over 550 financial institutions to join their net zero asset managers’ initiative, their net zero asset owners alliance, and their net zero banking alliance.

Therefore, finding financial backing to develop those new oil and gas licences may be hard or even impossible. Unless, of course, the purchasers are already large multinational oil and gas companies able to finance themselves. If so, this makes it hard to see how new entrants can join the oil and gas industry. 

New licence holders may too have trouble finding insurance for their new oil and gas platforms in the North Sea. Many of the world’s largest insurance companies have also adopted damaging anti-industry policies as members of the UN’s net zero insurance alliance (NZIA). NZIA membership demands that companies pledge to remove all greenhouse gas emissions from their investment funds as well as their insurance and reinsurance underwriting portfolios. 

Luckily the United States has taken a hard line on this scheme. When members of the US House of Representatives threatened the insurance companies with an anti-trust lawsuit, ten of the world’s largest insurance companies dropped out of NZIA. Will the UK’s Competition and Markets Authority take a similar hardline position on this net zero obsession taking hold at banks, fund managers and insurance companies?

After all, if banks won’t lend to oil and gas companies, funds won’t invest in them, insurance companies won’t underwrite them and the government continues to tax them at 75 per cent, then the chances of the government’s new oil and gas licences being developed seem exceptionally low. And life in the UK will be exceptionally grim when our electric heat pumps, lights, card payments, computers, cars, bikes, tubes, and trains stop working every time the wind drops. Bliss.