Sanjoy Sen: Was ‘The Donald’ right about the North Sea? | Conservative Home

Sanjoy Sen is a chemical engineer. He contested Alyn and Deeside in the 2019 general election.

By now YouTube is pretty well stocked with excerpts of Sir Keir Starmer getting variously ridiculed, bashed and even roasted by Donald Trump during their recent Scotland trip.

As ever, The Donald held forth on a wide range of topics – and that included energy and the North Sea. Whilst those seeking subtlety and balance may have been left disappointed (oil good, wind bad), how far wide of the mark was Trump’s assessment?

The North Sea has got us out of a hole before. Had oil and gas revenues not kicked in during the early eighties, the Thatcher-era economic transformation might never have got off the ground. And following both the miners’ strike and Chernobyl, the early nineties ‘dash for gas’ met our power requirements for a generation. Let’s see what might be learned from the latest Trumpian doctrine.

Is oil and gas – still a “treasure chest”?

As a 1980s schoolkid, I learned North Sea oil would be all be over by the millennium. Instead, I began my Aberdeen career in the year 2000 just as output was peaking at 4.5 million barrels of oil equivalent per day. (That’s a metric that combines oil and gas production.) But after half a century of extraction, daily output from the ‘ultra mature’ UK Continental Shelf is barely a million with major fields (Brent, Ninian, Murchison) now in a multi-billion pound decommissioning phase. These days, UK output barely meets half our national requirements.

Stalled developments (Cambo, Jackdaw, Rosebank) remain valuable but would, in reality, merely slow the decline. And beyond those, much of our remaining reserves are dispersed across marginal discoveries which may never prove viable. Backing remaining domestic production still makes sense, however. It drives investment, employment and tax revenue whilst buying time for the transition to alternatives. By contrast, Labour’s rejection of future licenses drives up imports (especially of energy-intensive LNG) whilst further eroding national energy security. North Sea operators are already feeling the pinch, announcing redundancies or quitting altogether.

Whilst no longer a “treasure chest”, Trump might have been onto something with taxes deterring investment, though. These currently sit at 78 per cent with almost half from the Energy Profits Levy, brought in when the barrel price was almost double what it is today. But worse than the current headline rate is the historic instability. Successive chancellors (Conservative and Labour) have endlessly meddled with rates in response to global events and oil price movements – the stuff that no-one can predict, let alone control.

Total offshore revenues exceed £300 billion but might have been even higher had investors enjoyed more certainty.

And what of those “ugly windmills”?

Back in his Apprentice-hosting days, Trump actually began with a positive relationship with First Minister Alex Salmond. But things quickly soured once the Scottish Government approved an offshore windfarm right opposite Trump’s new Aberdeenshire golf complex. Whilst Trump’s distaste for wind power (and its associated subsidies) remains undiminished, it’s undeniably part of Britain’s future energy mix. And let’s face it, it’s probably our best renewables option.

Many British householders (me included) have opted for roof-mounted solar panels to trim our domestic bills. But in our overcast northerly climes, their annual load factor is a lowly 10 per cent. So, large-scale solar, sometimes located on prime farmland, is unlikely to be the answer to the UK’s problems. As Germany has discovered (but Ed Miliband still hasn’t), you can install as many panels as you like – but you can’t get the sun to shine more.

And if Trump finds offshore turbines problematic, building them onshore is even more challenging here than in vast, empty Texas where even climate sceptic ranchers are cashing in. With many prime sites already taken, increasing our present 14 GW capacity to the 30 GW Renewables UK target could prove technically challenging and politically contentious. By contrast, building offshore (potentially using floating technology) allows developers to build more and taller turbines. And the further out to sea you go, the higher and more consistent the output: UK offshore wind’s load factor is 40 per cent, well ahead of onshore’s 26 per cent. But if we’re going to increase our reliance on wind, our next priorities need to be grid reinforcement and energy storage to balance out wind’s inherent variability.

Meanwhile, wave concepts are under investigation off Orkney thanks to the vast potential in the Pentland Firth. And the UK has the second largest tidal range in the world with sites on the Severn and the Mersey under consideration. But whilst the government has long identified significant wave and tidal potential, these are still yet to be commercialised and could be some way off, if ever. There’s probably no getting away from the need for new nuclear.

So what are the lessons to be learned?

North Sea oil and gas output is actually still pretty healthy. It’s just that most of it isn’t ours. Development of the Norwegian Continental Shelf (NCS) began soon after the UK’s but has followed a somewhat different path and now produces almost double our output. And whilst today’s Norway happily subsidises green initiatives (including world-leading rates of electric car take-up) it has no intention of ditching North Sea oil.

Like the UK, Norwegian tax rates have historically been high but consistency has delivered investor certainty. And generous rebates continue to encourage exploratory drilling. And whilst some cast an envious eye at the trillion-dollar sovereign wealth fund accumulated, other aspects of the Norwegian dream are less attractive: high taxation, rising living costs and paying to see your GP.

In the UK, nationalised production ended in 1988 when Britoil (formerly BNOC) was acquired by bp. Over in the NCS, the state oil company, Equinor (formerly Statoil) lives on alongside multi-nationals (bp, Conoco, Shell) which have invested billions since the seventies. In the UK, political debate is heavily polarised, either whole-heartedly in favour of private ownership (free enterprise, innovation) or dead-set against (short-termist, capitalist parasites). So, perhaps there are lessons from Norway on how the private and public can successfully co-exist and even interact. The future of British infrastructure (transport, water, energy) might yet depend on it.

Just one final thought for The Donald.

Right now, the USA is the world’s number one oil producer. In the short-term, low crude prices puts pressure on petro-states (which lack alternative income streams) and encourages take-up of thirsty SUVs. But US reserves are considerably smaller than the Middle East’s. Post-Trump America may soon have to re-think its oil dependence.