Berliner Boersenzeitung - North Sea drilling tests UK govt climate pledge

The decision after a consultation period ended Monday pits Labour's climate ambitions against pressure to boost domestic energy supplies and ease surging household bills.

- What are the projects? -

Jackdaw is a gas field situated east of the port of Aberdeen, and Rosebank, a field that mainly contains oil, lies west of the Shetland Islands.

Drilling at both sites was approved by the previous Conservative government in 2022 and 2023, before two environmental groups launched a legal challenge to block them.

A Scottish court ruled last year that the approvals failed to consider the carbon emissions the projects would indirectly generate, meaning both must reapply.

Adura, a joint venture formed by the merger of UK offshore operations of Britain's Shell and Norway's Equinor, is the sole owner of Jackdaw and majority owner of Rosebank.

Jackdaw already has infrastructure in place, while Rosebank needs more time before it can become operational.

"For Jackdaw, all the infrastructure is there, the wells are drilled, it's ready to turn on and it could be turned on in a matter of months," said Matt Cooper, senior vice president at energy consultancy Rystad Energy.

If it gets the go-ahead, Jackdaw would be ready in "perfect time for the winter season when you need more gas," he added.

- Why is it political? -

Labour pledged before coming to power in 2024 that it would not approve any new drilling licences in the North Sea.

But since becoming prime minister a month ago, Burnham has said Britain "can't ignore" its oil and gas reserves.

Within Labour, some support drilling for "security of supply and affordability", while others point to the jobs it can secure, said Jill Rutter, senior fellow at the Institute for Government.

For others in the party, "the most important thing is the commitment to net zero," she added.

Pressure from the opposition Conservatives and from US President Donald Trump to open up new drilling has also kept the issue in the spotlight.

- Will it bring down energy prices? -

For Britons, the real question is whether new drilling would help lower household energy bills, which have climbed since the outbreak of Ukraine and the Middle East wars.

"If you increase UK gas supply, all things being equal, it should reduce price," Cooper said.

But in practice, the impact could be limited.

UK energy prices are heavily influenced by international markets, leaving gas prices exposed to external shocks even if domestic production increases.

Gas from Jackdaw will feed into the grid and reduce some liquefied natural gas (LNG) imports, potentially improving the country's energy self-sufficiency, said James Reid, an analyst at Wood Mackenzie.

However, the expected volumes remain modest at market scale.

The impact on electricity bills would also be limited.

In the UK, electricity prices are often set by the high cost of gas-fired power plants, which are the last to be called on to meet demand.

Consumers would therefore only see a price difference if domestically produced gas replaced more expensive imports.

For the projects to meaningfully lower bills or boost investment in clean energy, the government would have to introduce specific mechanisms to redistribute some of the revenues generated, Rutter explained.

- What are the environmental consequences? -

If British oil and gas consumption remains the same, developing these two new fields would have little effect on overall emissions.

At the extraction and transport stage, replacing some LNG imports with gas from Jackdaw could even be less emissions-intensive because "the liquefaction, the shipping, the re-gasification, getting it into the grid, is more emission intensive than production in the UK North Sea," said Reid.

Environmental advocates counter that additional fossil fuel production can encourage more consumption and delay the energy transition.

Under UK law, greenhouse gas emissions indirectly generated by a business -- known as Scope 3 or downstream emissions -- must be taken into account.

The projects must therefore resubmit their environmental impact assessments for approval.

(B.Hartmann--BBZ)