UK to Mandate Annual North Sea Oil and Gas Licensing Rounds

(Bloomberg) -- The UK is to mandate annual North Sea oil and gas licensing rounds under plans to be announced this week, as part of efforts by Prime Minister Rishi Sunak’s government to give certainty to investors and reduce reliance on “hostile foreign regimes.”

Legislation to be set out in the King’s Speech on Tuesday will require the North Sea Transition Authority regulator to invite applications to drill for fossil fuels in the North Sea each year, according to a statement issued by Sunak’s office. 

Britain has a target to reach net-zero emissions by 2050, but the government says that even by this date the country will still be relying heavily on oil and gas to meet its energy needs. Domestic production, it argues, will improve energy security and make the UK less dependent on suppliers such as Russia. 

However, critics accuse the Conservatives of backsliding on their climate goals. Sunak has pushed a ban on new combustion engine cars from 2030 to 2035, postponed requirements for landlords and homeowners to insulate their properties and upgrade boilers, and has promised hundreds of new licenses to drill for oil in the North Sea.

The issue has become a key dividing line between the ruling Conservatives and the opposition Labour Party ahead of a general election expected next year. 

Sunak says the transition to net zero must be done in a “pragmatic” way that does not add to household bills. Labour has promised to stop issuing new North Sea licenses if it wins power and instead spend £28 billion ($34.7 billion) a year to fund green investments by the end of the next parliamentary term.  

Each annual licensing round will only take place if key tests are met that support the transition to net zero, the government said. 

The UK must be projected to import more oil and gas from other countries than it produces at home, and carbon emissions associated with the production of UK gas must be lower than the equivalent emissions from imported liquefied natural gas. If both tests are met, the NSTA will be required to invite applications for new licenses annually.

“Domestic energy will play a crucial role in the transition to net zero, supporting jobs and economic growth, while also protecting us from the volatility of international markets and diversifying our energy sources,” Sunak said in a statement. “The clarity and certainty that our new legislation will provide will help get the country on the right path for the future.”

The NSTA last month issued 27 new licenses. The process had been on hold pending a review of the environmental impact of exploration. 

The King’s Speech, setting out the program of legislation the government intends to pursue in the new parliamentary session, represents a last chance for the Conservatives to turn around their electoral fortunes before the general election. Polls put the Tories around 20 percentage points behind Labour.

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