Study warns regulator must take action as private equity firms and state-backed groups begin to dominate
Foreign control of North Sea oil licences could put the UK’s plans to reach net zero emissions at risk, a study has warned.
The research shows state-backed fossil fuel companies and private equity firms are taking a tighter grip on North Sea oil, raising concerns about the government’s ability to wind down fossil fuel production and secure a “just transition” for workers.
The study by the Common Wealth thinktank, and research by climate journal Desmog, reveals that more than a third of the licence blocks in the North Sea now have a private or state-backed controlling interest, with fossil fuel firms from China, Russia and the Middle East playing an increasingly dominant role.
Unlike the oil majors, many of these companies do not face public scrutiny, are not accountable to shareholders and are not required to have the same degree of corporate governance as leading listed businesses.
Campaigners say this is potentially “catastrophic” for the UK’s plans for a rapid and fair transition towards a low-carbon economy, despite efforts by the Oil and Gas Authority (OGA) to bring the industry to heel.
“A revolution is under way in the North Sea,” said Mathew Lawrence, Common Wealth’s director. “Who owns the UK’s oil and gas assets is changing dramatically and with it, how we secure a fossil-free future.”
In recent years oil majors such as BP and Shell have begun to retreat from the North Sea, leading to a sharp rise in private equity firms and state-backed companies taking up licences, which could raise new challenges for the industry’s regulator. In 2010, private companies’ collective share of production in the North Sea was just 8%, but this jumped to 30% in 2020, according to data from Rystad Energy.
Lawrence said these companies are “typically less transparent and insulated from public pressure” which raises “urgent strategic questions” for the UK government and “will probably require the return of democratic control and planning over the UK’s natural resources”.
An investigation by Channel 4 news has uncovered deleted tweets from Steve Brown, the chief executive of North Sea oil minnow Orcadian Energy, which claimed that the global drive to meet the Paris Accord target to reach net zero carbon emissions by 2050 is “insane”. The now deleted personal tweets are understood to have been posted before the company listed on London’s junior stock exchange last month.
A spokesperson for Orcadian Energy reportedly told Channel 4 that “what individuals believe is irrelevant”, and that “what really matters is the significant work Orcadian Energy has done” to make its proposed development scheme as “clean as possible”.
The OGA was established to help the North Sea “maximise economic recovery” from the North Sea but is also responsible for reducing its emissions and helping the industry transition to a net zero carbon future.
“With the OGA now having an obligation to help deliver the UK’s net zero target it is vital that, as ownership changes, strong oversight and action by the regulator powers a just transition for the sector,” Lawrence said.
Many environmentalists fear the regulator has fallen short when it comes to the quick action needed to tackle emissions within the next decade. but the oil basin’s total emissions each year remain as high as the carbon produced from a coal-fired power plant.
The UK government’s new round of licensing for oil and gas wells in the North Sea included up to £16bn in joint investment between the government and private sector. Senior climate negotiators are concerned that this may undermine the government ahead of a vital UN summit, Cop26, which the UK is hosting in Glasgow in November.
A spokesperson for the OGA said its recently updated strategy requires oil and gas companies to operate “in a way that is consistent with net zero ambitions”.
“We’re holding industry to account on the emissions reduction targets and energy transition commitments. The UK continental shelf (UKCS) is subject to one of the strictest systems of regulation in the world,” he said.
Other countries, including Denmark and France, are halting investment in new fossil fuel production, and in May the International Energy Agency said the exploitation and development of new oil and gas fields must stop this year if the world is to stay within safe limits of global heating.
The Common Wealth report highlights the involvement of several large state-owned entities in the North Sea, including Korea National Oil Corporation, Equinor from Norway, China National Offshore Oil Corporation, Russian firm Gazprom and the Abu Dhabi National Energy Company (TAQA).
Among the private companies involved are Ineos, the chemicals firm owned by one of the UK’s richest people, Sir Jim Ratcliffe. Others include Neo Energy, Tailwind and Siccar Point.
Siccar Point is the majority owner of the Cambo oil licence near Shetland, alongside the oil company Shell, which is the subject of a brewing legal battle over plans to explore for extra reserves to extend the project. Greenpeace has threatened to take legal action against the government if it approves the plans after promising to put an end to new oil exploration licences that do not align with the UK’s climate goals.
A government spokesperson said in response: “While we are working hard to drive down demand for fossil fuels, there will continue to be demand for oil and gas over the coming years.”