Why drilling in the North Sea won’t bring down UK energy prices

Since the first US-Israeli attack on Tehran on February 28, approximately 20 percent of the world’s oil and natural gas resources have been effectively blocked due to the Iranian regime’s control of the Strait of Hormuz.

This has led to fuel prices rising, which has led to passionate demands from politicians and some corners of the media that the UK move towards extracting its own oil and gas from the North Sea.

On Tuesday, Donald Trump, whose decision to attack Iran sent oil prices soaring to almost $120 a barrel, took issue with the British government, saying it should “DRILL, BABY, DRILE” to extract fossil fuels from the North Sea.

Nigel Farage’s UK Reform Party later said it would aim to extract “the last barrel, the last drop” from the North Sea if elected.

Richard Tice, Reform’s deputy leader and spokesman for jobs and energy, promised this week that the Reform government would approve the Rosebank and Jackdaw projects in the North Sea.

Following 43 days of fuel price increases and warnings that the average UK household will be almost £500 worse off this year due to the impact of war on energy bills, it is perhaps no surprise that politicians and the media are calling for action to tackle the problem.

But many climate experts said: Independent Drilling the UK’s remaining gas and oil reserves will not reduce prices or improve energy security, branding it a “pure red herring”.

There are several reasons why drilling in the North Sea will not reduce prices or improve the UK’s energy security. Let’s go over these:

1. Oil and gas are sold on the free market

Oil and gas extracted from the North Sea are sold by the companies that extract them on the open market, which sets global prices. Since it is domestic production, we cannot get a discount. Moreover, according to Bob Ward of the LSE’s Grantham Research Institute, the amount we could produce would be “insignificant”, meaning it would “make no difference to the global price”.

Professor Gavin Bridge, Fellow of the Durham Energy Institute and Researcher at the UK Energy Research Centre, agrees. he said Independent: “More drilling in the North Sea will not reduce energy costs for British consumers. The UK is not an isolated energy island where new supply drives prices down. The prices we pay for oil and gas in the UK are determined by international markets, regardless of whether the oil is extracted from the UK North Sea or elsewhere.”

This is also from Oxford University’s Smith School of Business and Environment. It was also echoed by Anupama Sen. he said Independent: “Oil and gas are priced on international markets wherever they are produced, so the idea that extracting more oil from the North Sea will reduce utility bills is misleading.”

2. There is almost no oil and gas left in the North Sea

North Sea oil and gas production peaked in the 1980s and 1990s, and the remaining reserves are located in areas that are increasingly difficult and therefore more expensive to drill.

Professor Bridge described the North Sea as a “highly mature basin” and currently “in long-term decline”.

“Drilling has been going on for over half a century, so the new supply available is currently very small relative to overall market demand,” he said. “Additional production from the North Sea would have a negligible impact on prices or the cost of living in the UK.”

The two oil fields that Reform says it will immediately license – Rosebank and Jackdaw – are also relatively small even by North Sea standards.

Robert Gross, professor of energy policy at Imperial and director of the UK Energy Research Centre, said: Independent: “Neither field is large in terms of either UK demand or historical production in the UK North Sea. Jackdaw could eventually produce around 6 per cent of the UK’s gas production (3 per cent of the UK’s total gas demand).”

Meanwhile, Rosebank is also on the petite side. According to the LSE’s Mr Ward, “At its peak, Rosebank will increase the UK’s current daily gas production by less than 2 per cent… These are too small to make any difference to international prices.”

An oversupply of gas produced in the UK will not reduce prices as it will not be stored here; Instead, Professor Gross said, as North Sea exports increased, this money would flow out of the interconnectors. As the UK relies on two-way gas movement with Europe due to having very little gas storage, trying to hold back gas would undermine energy security, with claims being made that further drilling could turn prices into a “total red herring”.

3. Gas determines the price of UK electricity as it is the most expensive form of energy

Gas is the leading cause of high energy prices in the UK; it is the most expensive form of energy and we still rely heavily on it.

Around 30 per cent of the country’s electricity comes from gas-fired power stations (much more than Germany’s 17 per cent or France’s three per cent) and more than 70 per cent of British homes rely on gas for heating, many for cooking.

High bills are partly due to the UK’s “marginal pricing model”; This means that electricity prices are almost entirely determined by gas prices.

This increasingly controversial system means that the most expensive power source needed at any given time (which is almost always gas) determines the price of all electricity on the grid; even though cheaper renewable energy provides the majority of the power. Given that gas sets the market price by 98 per cent, UK household bills are severely exposed to fluctuations in global gas markets.

Do people really want the North Sea to be drilled?

Professor Bridge, of Durham University, said it was vital to recognize that although some fossil fuel advocates had called for drilling in the North Sea, this did not reflect a wider desire among the public for such action.

he said Independent: “Not many people are demanding it. The loud voice now pushing for more oil and gas says more about the state of British politics than sound energy policy.”

The Tony Blair Institute recently came under fire After suggesting the Labor government’s approach to energy concerns does not include further provision of North Sea fossil fuels.

In an email IndependentThe organisation’s energy policy expert, Tone Langengen, said the former Prime Minister’s think tank acknowledged “North Sea drilling will not directly reduce household bills” because prices are set by global markets, but added: “As long as the UK is still dependent on oil and gas for around 70 per cent of its energy, producing more domestically would reduce exposure to the most volatile imports (especially LNG), while supporting incomes for the exchequer and strengthening our energy security.”

But Mr Ward, of the Grantham Institute, warned against the claim that tapping into fossil fuels was good for the country’s economy.

“If you add the amount of tax the Treasury receives from the increased tax rate through the energy profits tax (78 per cent), that is less than half the £44bn the government has to spend in 2022/23 to help consumers with high energy prices.”

He added: “Our dependence on fossil fuels is actually bad for our economy because the costs are so high.”

There is England a poor track record On managing fossil fuel revenues During the peak of North Sea oil production in the 1980s and 1990s, the UK government spent oil tax revenues to fund day-to-day government spending, cutting national debt and tax cuts rather than saving money.

Norway, meanwhile, created a fund that became one of the largest sovereign wealth funds in the world; Ironically, the UK, which has not established a long-term investment vehicle for future savings, is now contributing to this by actually purchasing gas from Norway.

Don’t forget the climate crisis

While experts are keen to expose the economic futility of drilling for small amounts of oil and gas in the North Sea, experts Independent He also talked about the need to leave fossil fuels in the ground as the climate crisis worsens and clean energy goals become existential concerns.

“Climate change cannot be ignored or eliminated,” Professor Bridge said. “The scientific, economic and moral case for increasing renewable energy sources and reducing the extraction and burning of fossil fuels is clear. It is not surprising that the oil and gas industry takes advantage of geopolitical events and high prices to promote its own interests. What is disappointing is to see these claims dressed up by others as national interests.”

Mr Ward echoed these concerns and suggested the UK needed to show climate leadership by moving away from fossil fuel consumption: “The main reason we are not drilling in the North Sea is that we already have more oil and gas reserves around the world that can be burned and stay within our climate targets.

“If we try to maximize it, we won’t be able to convince other countries to leave fossil fuels in the ground.” [ours]Let’s put aside the fact that it won’t actually lower prices and will make little difference to our security. So there’s no real benefit to drilling more.”

Dr. from Oxford University Sen said: “If we are serious about reducing energy costs, the real gains lie in investing in renewables, storage and electrification, and fixing a system that continues to expose households to volatile global gas prices.”