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UK stands by offshore oil, gas licensing despite rising tensions over net-zero targets

Highlights

Upstream climate 'checkpoints' to be agreed by year-end: minister

New licensing not ruled out after 2020 suspension

Trevelyan emphasizes continued energy security considerations

The UK will still consider offering new offshore oil and gas licenses in the future, energy minister Anne-Marie Trevelyan said June 23, despite rising pressure on the country to ban new exploration in the wake of a landmark report on global carbon emissions by the International Energy Agency.

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The UK suspended North Sea licensing in September 2020 to align the process with the country's long-term climate goals as it also prepares to host United Nations COP 26 climate talks in November. The country, which still pumps about 1 million b/d from its offshore fields, has pledged to become a net-zero emitter by 2050.

But calls for a moratorium on future UK exploration licenses have escalated after the IEA said last month said that no new oil and gas resources were needed under a global pathway to achieving net-zero emissions by 2050.

"We are not issuing any new licenses this year but we're not saying absolutely never," Trevelyan told the Reuters Global Energy Transition 2021 online conference. "If there was a very good case, and there was a strong evidence base behind it, then we continue to say at this point that we will be willing to consider new licensing, because as a government we have to make sure that we can ensure security of supply and a stable transition."

"We've set a very clear line of sight that we want to see an orderly transition away from oil and gas, but accepting that we do still need it for some time to come. The oil and gas sector have been incredibly forward-leaning in this and... agreed to meet really stringent reductions in their own emissions," Trevelyan told the event. "We're working with industry and many specialists... to set out exactly what that framework will look like."

Climate criteria are expected to play an explicit role in licensing under a "Transition Deal" agreed with the oil industry in March and Trevelyan said the UK is on track to set out its new framework for oil and gas upstream licensing by the end of the year.

Trevelyan said the Department for Business, Energy & Industrial Strategy was talking with "industry and many specialists" about the planned licensing "checkpoint system." The government has said this will "use the latest evidence, looking at domestic demand for oil and gas... projected production levels, the increasing prevalence of clean technologies such as offshore wind and carbon capture, and the sector's continued progress against its ambitious emissions reduction targets."

'Laughing stock'

Her comments came hours after Greenpeace said the UK would be a "laughing stock" at the COP 26 talks in Glasgow if it approves Shell and Siccar Point's new Cambo oil project west of the Shetland Islands.

"The International Energy Agency has said 'no new oil and gas'," Greenpeace UK political campaigner Sam Chetan-Welsh said in a statement. "We know oil is in decline and offshore workers urgently need support to move to jobs in renewables."

Trevelyan also noted a government decision this year to no longer provide financial support for overseas oil and gas projects through mechanisms such as export credit finance, saying the goal was to support overseas energy transition projects, but countries generally also had to consider security of supply.

"The purity of the [IEA] report is excellent, but the reality in practice for countries is about ensuring security of supply so that their citizens and their businesses can continue to work and grow successfully. We're going to be stepping up as we have been our offer to work with countries to unlock their massive renewable energy potential and in doing that they can pursue cleaner alternatives away from fossil fuels and reap the rewards that that brings," she said.

For the UK, "security of supply is a really, really important part of this because we don't want to have cliff-edges on the way through," she added.

Norway licensing

On the same day, Norway's energy ministry said it had offered stakes in four production licenses, three of them in the Barents Sea, to seven companies: state-controlled Equinor, Shell, joint venture Var Energi, which is majority-owned by Italy's Eni, Japan's Idemitsu, Switzerland-based Ineos, Stockholm-listed Lundin Energy and Austria's OMV.

The petroleum and energy ministry noted that the 25th licensing round was focused mainly on less well-explored areas and said together with awards for better-explored areas it was "important for employment and value creation in the Norwegian oil and gas industry."

Both countries' oil and gas sectors are maturing, but the 2019 startup of Norway's giant Johan Sverdrup field underlined expectations of continued resources to be found in the North Sea and beyond, including the Barents Sea and, for the UK, the West of Shetland area.

Industry group Oil & Gas UK expects the UK to require another 17 billion barrels of oil equivalent over the 30 years to 2050, of which it estimates two-thirds, or 11 billion boe, could be supplied from developed or yet-to-be-developed UK sources.