Can we actually “just stop oil”?
Benjamin Liu
Nobody expected the Portico to turn orange. On the 11th of October last year, UCL saw something special – a protestor named ‘Arthur’ rushed past security officers and sprayed paint across the columns of the Wilkins Building. He is an environmental activist from the group Just Stop Oil.
Since its founding in February 2022, Just Stop Oil has hit London with a series of high-profile protests. It recently challenged the government’s decision to grant over 100 licenses for new oil and gas exploration projects in the North Sea.
Just Stop Oil wants the government to halt new licensing for the production and extraction of oil in the UK, but companies can continue to exploit sites that have existing permissions from the authorities. Oil production will therefore not shut down completely.
Rishi Sunak, however, believes ending new licenses will increase the UK’s reliance on oil imports in the future. Data from the Office for National Statistics shows that the UK’s import of oil and gas almost tripled between April 2021 and 2022 (12), and the import dependency rate (value of imports / total consumption) was already at 41% in 2022. As a result, the energy crisis stemming from the Russia-Ukraine conflict fed through into retail gas bills paid by customers locally.
By 2030, 180 of 283 oil and gas fields in the North Sea will cease production due to natural decline (17). According to Sunak, without new licenses to develop fossil fuels, the UK must import even more oil in the next few decades to meet domestic demand, leaving the country vulnerable to price hikes in the global market.
Yet, data from the Climate Change Committee (CCC) tells us a different story.
Source:
https://www.statista.com/statistics/749076/projected-uk-oil-production-demand/
https://www.statista.com/statistics/749246/projected-uk-oil-production-dependency/
In general, a cut in domestic oil production should make countries import more from external sources to meet the demand locally. For the UK, however, while oil production is expected to fall by 66% from 2022 to 2040, imports will instead decline by 6% during the same period.
This is because a drop in domestic oil production does not really affect the UK’s imports. Private companies that extract oil from the North Sea prefer to sell it on the international market for higher prices, and British refineries lack the capacity to process some of the oil produced. As a result, the UK has been exporting around 80% of its oil and not much goes to the local market, according to The Guardian (14). This means that a fall in local oil production may not greatly reduce the amount available to UK households and may not increase the demand for oil from other countries.
Conversely, new production of oil sent abroad exerts little influence on domestic consumption and imports. Even if the UK extracts all oil reserves from the North Sea and directs them to the local market, Heatable’s estimates indicate that the reserves would run dry in five years (13). Thus, regardless of its production, the UK will have to import oil and assume the associated energy security risks. The CCC found that any increase in the extraction of oil will have “at most, a marginal effect on fuel prices faced by UK consumers in the future”.
Source:
https://www.statista.com/statistics/749076/projected-uk-oil-production-demand/
https://www.statista.com/statistics/749246/projected-uk-oil-production-dependency/
The limited impact on fuel prices underscores the desirability of an alternative energy strategy. Instead of boosting oil supply with new licenses, lowering demand might be a better way to address the supply-demand imbalance over the long term. According to the diagram above, between 2030 and 2040, oil demand will decrease by roughly 10% compared to a 5% decrease projected between 2022-2030 due to the UK’s net zero efforts. Imports are expected to decline by 15% between 2030-2040.
Half of the UK’s oil demand comes from the 32 million vehicles relying on petrol or diesel (18), and refined oil is also used in industries for manufacturing processes, and some households for heating. To achieve net zero emissions by 2050, the government is thus expected to facilitate the rollout of electric vehicles and increase the energy efficiency of factories and homes. All of this explains the anticipated drop in oil demand after 2030, as observed from the data, and the consequent decline in imports.
Despite the fall in import numbers, at the UK’s current pace of energy transition, its import dependency rate will still be 45% in 2040, according to the CCC’s predictions. A faster decline in oil demand is necessary to further reduce import numbers and lower the dependency rate. To achieve this, the government must accelerate the phase-out of oil usage in transport, industries and households.
Such a move would require billions in expenditure, but some help could be obtained from the North Sea itself. Companies extracting oil from the area should have paid a total of £11 billion in taxes from 2022 to 2023, far higher than the amount of £300 million two years ago estimated by the Office for Budget Responsibility. The soaring revenue from the North Sea could potentially fund some of the government’s efforts to cut reliance on oil usage and import, reducing the need for new North Sea projects over the long term.
In short, new licenses for oil production will reduce the UK’s import dependence by a small margin. On the other hand, cutting fossil fuel consumption on the path to net zero will have a much stronger impact when considering the previously mentioned projections that predict lowering, but relatively steady, oil demand. So long as the country speeds up its energy transition, we can truly “just stop oil”.
Nevertheless, it is important to note that halting new oil and gas projects could erase potential jobs for North Sea communities that participate heavily in the industry. The chart above shows the consultancy EY’s projection of employment in the oil and gas sector under two price scenarios, which correspond to different extents of new exploration. Between 2025 and 2038, if a high number of new projects take place, there will be on average 9,000 more jobs in both direct production and supporting industries. A ban on new oil and gas projects will prevent these opportunities from emerging.
However, even if new fossil fuel exploration generates additional jobs, the bulk of freshly created roles will be gone in the long term due to the inevitable depletion of oil reserves, which will force production to stop. Even with a high number of projects, employment will start to decline rapidly after 2038 and in 2050 the number of available jobs will only be 3000 more than the scenario without new projects. Therefore, while halting new oil and gas exploration indeed takes away potential employment opportunities, some of these jobs will cease to exist anyway with time.
Whether we “stop oil” or not, it is almost certain that many of the 28,000 workers who are currently employed in the oil and gas industry will eventually lose their jobs. To help them enter new sectors, a bold and proper industrial strategy is imperative. The government has in the North Sea Transition Deal promised new jobs in renewables such as offshore wind and hydrogen, along with the reskilling of workers. However, the plan received strong criticisms for only containing loose commitments. Offshore workers are now demanding a concrete industrial strategy that provides “clear, accessible pathways out of high carbon jobs”, and encourages “investment in domestic renewables manufacturing”, according to the New Statesman. The end of oil production is inevitable, and addressing the resulting job losses demands innovative solutions that create employment opportunities in alternative sectors.
References
1. UCL Pi Media, 11/10/23, Just Stop Oil Targets UCL
https://uclpimedia.com/online/just-stop-oil-targets-ucl
2. UCL Pi Media, 5/11/23, Over 60 Just Stop Oil protestors arrested at Parliament Square march
3. BBC, 8/11/23, Just Stop Oil: What is it and what are its goals?
https://www.bbc.co.uk/news/uk-63543307
4. Carbon Brief, 8/6/23, Factcheck: Why banning new North Sea oil and gas is not a ‘Just Stop Oil plan’
5. Gov.uk, 31/7/23, Hundreds of new North Sea oil and gas licences to boost British energy independence and grow the economy
6. North Sea Transition Authority and Climate Change Committee, Production and Expenditure Projections, https://www.nstauthority.co.uk/media/03afs5i1/nsta-september-2023-production-projections-plus-ccc-and-desnz-demand-projections.xlsx
7. North Sea Transition Authority and Climate Change Committee, NSTA February 2022 oil and gas production projections and latest BEIS and CCC demand projections, tab Implied trade shares (CCC)
8. RUSI, 30/6/23, Does Domestic Oil and Gas Production Improve UK Energy Security?
9. Climate Change Committee, 24/2/22, Letter: Climate Compatibility of New Oil and Gas Fields
https://www.theccc.org.uk/publication/letter-climate-compatibility-of-new-oil-and-gas-fields/
10. The Guardian, 1/5/23, Does the UK really need to drill for more North Sea oil and gas?
11. OEUK, 22/11/23, UK must allow new oil and gas fields – or risk surging import bills and future shortages, say industry experts
12. Office for National Statistics, 29/06/2022, Trends in UK imports and exports of fuel
13. Heatable, 02/12/2022, Where does the UK get its gas from?
14. The Guardian, 19/01/24, Analysis reveals 80% of North Sea oil is exported
https://www.theguardian.com/business/2024/jan/19/analysis-reveals-80-of-north-sea-oil-is-exported
15. The New Statesman, 30/10/23, New oil fields are bad news for North Sea workers
16. EY report
17. Offshore Technology, No more North Sea oil and gas licences, says former BP boss
18. Gov.uk, Road fuel consumption and the UK motor vehicle fleet