Offshore energy investment billions 'on hold' over political uncertainty

One of the UK's biggest trade unions warned at the weekend that over £6.6 billion needs to be committed over the next six years to save over 30,000 Scots oil and gas jobs by the end of the decade having hit out at Labour's policy of banning new licences for oil and gas projects in the North Sea following concerns over major job losses by 2030.

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The biggest union backer of Labour is pushing Labour, the favourites to win any forthcoming General Election, to commit to its radical plan to spend £1.1bn a year over the next six years in investment in Scotland to create the transition from oil and gas to renewables - which she says will save 30,000 jobs and create 6,000 more by 2030.

Research from last year shows that of 154,000 UK jobs in offshore energy including oil, gas and renewables more than half (79,000) were in Scotland.

An Offshore Energy UK trade association industry analysis seen by the Herald says that of £200bn that could be invested in oil, gas, wind, hydrogen, carbon capture and storage projects this decade - some £160bn still remains unspent.

And they say it could grow much more in the 2030s and approach £450bn by 2040.

But they say that "challenges holding this back are growing".

They say uncertainty over economic policies has limited investment in UK energy and in the supply chain.

By contrast, investment in energy projects was rising in other parts of the world, backed by "more predictable" government support.

This was attracting supply chain resources away from the UK, as "more sustainable returns and work durations are on offer elsewhere", including the Middle East, Australia, west Africa and the US, where the Inflation Reduction Act "is having an impact".

Political uncertainty was considered to be "high" ahead of a general election with the main parties having "different policies regarding the future development of the energy sector" which are "already influencing company plans".

OEUK say political policy needs to encourage investment into the UK’s energy system.

And they warn that any windfall taxes on profits make it "very difficult to plan investments and raise finance".

The windfall tax on oil and gas companies was extended by a year in March - until March 2029.

The Energy Profits Levy, introduced as a response to soaring profits in May 2022, raised £2.6bn, external in its first year. When introduced by Prime Minister Rishi Sunak when he was chancellor in May, 2022, it was at 25%. It was increased to 35% in January.

BP made $13.8bn (£11bn) in 2023, down from the record $27.7bn in 2022. and Shell profits were $28.2bn (£22.3bn) in 2023, down from $39.9bn in 2022 - the highest earnings in its 115-year history.

Critics say the existing North Sea Transition Deal - a voluntary, non-binding agreement between Westminster and the industry reached in 2021 - leaves the North Sea’s shift away from oil and gas production in the hands of companies making profits from fossil fuels.

It has faced heavy criticism for focusing on relatively narrow industry concerns and failing to protect Scotland’s workers and communities, as jobs in the North Sea oil and gas industry, which have been slashed in the last decade continue to decline.

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Uplift - an organisation campaigning for a fair transition away from oil and gas - says that it has so far failed to deliver as it puts the interests of companies above those of workers.

A survey conducted for Uplift suggests that a lack of faith in the oil and gas industry can be found in all corners of Scotland.

The poll conducted by Diffley Partnership in May 2024 assessing the views of 2660 Scottish adults, showed that nearly three quarters of Scots (74%) do not trust North Sea oil and gas companies to handle the green transition in a way that benefits their workers and communities dependent on the sector And the overwhelming majority (83%) of SNP voters have a lack of trust.

While just one fifth (21%) of respondents in Aberdeen - the industry’s heartlands - trust oil and gas companies to handle the green transition so that workers and communities benefit.

North Sea oil and gas companies are also widely considered by most respondents (70%) to benefit more from extraction in the basin than Scotland itself does currently.

It wants a New Deal for the North Sea and encourages the UK to collaborate with the Scottish Government “to create an overarching strategic plan and development programme”.

Offshore Energy UK has said that with "the right conditions" the UK's offshore energy sector could invest £450bn in new and old sources of energy by 2040.

But its chief executive Dave Whitehouse in its 2024 business and supply chain outlook which has been circulated within the industry warned that "without a stable environment that allows a fair return, no one will [invest]. This includes fiscal competitiveness and certainty, along with more regulatory process streamlining and alignment."

OEUK say that "uncertainty over future projects in the UK is holding back the supply chain".

It says that "getting things right, at home, will help unlock a £1.1 trillion global market... but project uncertainty is holding it back".

It said that "policy support and certainty is needed to give supply chain companies the confidence to invest" and that companies need confidence on the timing of projects "otherwise, the UK will need to rely on international supply chains for projects".

They said that this will put the UK at the "back of the queue for building energy transition projects, risking economic growth, jobs, and emissions reductions".

It goes on: "Companies need confidence on the timing of projects, or the UK will be at the back of the international supply chain's queue when it comes to energy transition projects."

The UK Government failed to secure new offshore wind farms in its flagship 'Contracts for Difference' scheme auction in September.

And OEUK believes that failure came because the government "failed to recognise the scale of challenges being faced" and that "action is needed".

Two thirds of capital investment in energy - almost £20bn - was yet to be approved, 80% of this being for this decade, with OEUK saying the level of risk associated with the investment being "higher than ever".

While a number of oil and gas fields could be approved this year, only the Victory gas field in the West of Shetland area is expected to be signed off this year due to what the OEUK says is the "current challenges and regulatory timelines".

OEUK said the industry needed fiscal stability" but said there have been but there have been "four tax changes in two years – and further changes are proposed. These would make the UK highly uncompetitive compared with other countries.

"Higher tax rates reduce cash flow, meaning there is less reinvestment opportunity. Cutting capital relief and allowances significantly below the headline tax rate would also mean project returns would be far less likely to pass investment hurdles.

"Some £20bn of unsanctioned [capital] investment can only go ahead with the right conditions.

"It is also likely that fields will stop producing earlier than planned, meaning even less reserves produced and decommissioning costs brought forward."

The Herald previously revealed that the nation's oil and gas industry is estimated to have lost tens of thousands of jobs more jobs than has been gained from renewables in the green revolution over a decade leading to grave disquiet over how the nation's energy economy is being handled.

The oil and gas industry in Scotland has shed nearly 40% of its jobs amounting to 50,000 in Scotland over a decade, according to industry figures - while the number gained from low carbon enterprises has risen by just 2,500, according to official estimates.

The Scottish oil and gas jobs loss has come despite the UK Government pressing ahead with new licensing for fossil fuels projects.

OEUK, working with the multinational data analytics and consumer credit analysis Experian found that the number of jobs directly and indirectly employed in oil and gas in Scotland have crashed by nearly 40% since 2013 from 117,900 to just 74,100 in 2022.

David Whitehouse is CEO of Offshore Energies UK, the leading representative body for the UK’s integrating offshore energy industry

Mr Whitehouse stated: "The UK needs to have a sign above its door which clearly says it is open for offshore energy business. Big investment is needed in projects and in the supply chain’s capacity. Policy support that spans political divides, from national and devolved governments, is needed to give companies the confidence to make decisions now."

Tessa Khan, executive director of Uplift said that the levels of distrust in the oil and gas industry were "telling".

"For years, the oil and gas industry has promised the public that they will lead the transition to clean energy, while handing their record profits to shareholders instead of investing them in renewables jobs and local supply chains. So it's no surprise that people have stopped buying their greenwash and see the naked self-interest that actually drives these companies.

"It has been a huge error on the part of this government to put the oil industry, which is showing such a commercial disinterest in the UK’s transition to clean energy, in the driving seat of the North Sea’s transition away from oil and gas. The majority of operators in the basin invest nothing in UK renewable energy, with major players ruling it out altogether, and potentially huge growth opportunities, such as decommissioning, are being ignored because they don't suit the industry's bottom line.

"Beyond this, oil and gas companies have neither the capacity, nor are their interests served, by coming up with a broad and coherent plan for the North Sea energy transition that takes account of the needs of workers, the supply chain, communities, and the country as a whole.

"There is now a chorus of voices calling for an urgent change in direction before we see a full blown crisis. The North Sea is an inexorably ageing basin with declining reserves that are now expensive to extract. Jobs supported by the industry have already halved in a decade, despite government support for oil and gas, and will only continue to fall.

"To win back trust, the next government needs to get everyone around the table – not just Westminster politicians and the oil and gas firms, but the Scottish government, trade unions, worker representatives and affected communities – to create a coherent, detailed and workable agreement for the next phase of the North Sea powering this country, that’s in everyone’s interests. That is how you ensure the transition is fair.”

A Department for Energy Security and Net Zero spokesperson said: “Our offshore energy sector is a UK success story – between 2010 and 2023 we’ve attracted £300 billion in public and private low carbon investment, with a further £100 billion of private investment expected by 2030.

“And no one is backing the oil and gas industry more than the government. Our annual licensing rounds are supporting around 200,000 jobs, giving them certainty to invest and unlocking billions in tax for our own transition to clean energy.

“The temporary windfall tax on oil and gas firms actively encourages investment to create jobs and grow the economy – the more investment they make the less tax they will pay.”