U.S. markets close in 53 minutes
  • S&P 500

    4,035.92
    +12.03 (+0.30%)
     
  • Dow 30

    32,433.47
    +236.81 (+0.74%)
     
  • Nasdaq

    11,758.70
    -46.30 (-0.39%)
     
  • Russell 2000

    1,793.01
    +0.34 (+0.02%)
     
  • Crude Oil

    113.71
    +3.22 (+2.91%)
     
  • Gold

    1,821.50
    +13.30 (+0.74%)
     
  • Silver

    21.65
    +0.64 (+3.07%)
     
  • EUR/USD

    1.0445
    +0.0028 (+0.27%)
     
  • 10-Yr Bond

    2.8820
    -0.0530 (-1.81%)
     
  • GBP/USD

    1.2324
    +0.0062 (+0.50%)
     
  • USD/JPY

    129.0900
    -0.0950 (-0.07%)
     
  • BTC-USD

    29,903.44
    -345.06 (-1.14%)
     
  • CMC Crypto 200

    670.70
    +428.02 (+176.37%)
     
  • FTSE 100

    7,464.80
    +46.65 (+0.63%)
     
  • Nikkei 225

    26,547.05
    +119.40 (+0.45%)
     

‘Premature’ North Sea drilling ban will push up energy bills, BP warns

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·9 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
BP
BP

Consumers will be threatened with even higher energy prices if the Government backs a "premature" ban on oil and gas drilling in the North Sea, the chief executive of BP has warned.

Ministers will simply increase Britain's reliance on imports if they bow to pressure from activists and block all new fossil fuel projects, with no impact on carbon emissions, Bernard Looney said.

Speaking as BP unveiled a jump in profits driven by the global economic recovery, Mr Looney said that halting all new domestic oil and gas extraction would “not necessarily help” Boris Johnson in his drive to reach net zero.

"If you take away supply but demand does not change, the only thing that happens is prices go up. "So we need to be very careful about prematurely taking away supply from the market," he said.

Energy prices are a matter of increasing concern for the Government as it confronts the cost of reaching net zero carbon emissions by 2050.

The wholesale cost of gas has surged as much as sixfold since the world reopened, triggering the collapse of 18 UK energy providers since September.

Omni Energy, MA Energy, Zebra Power and Ampoweruk became the latest small players to collapse on Tuesday, meaning their domestic customer base of around 20,000 people will be moved to new providers.

The Prime Minister is this week seeking to secure approval from world leaders to halt global warming at the COP26 conference in Glasgow.

UK Prime Minister Boris Johnson and India's Prime Minister Narendra Modi at Cop26 - Pool/Getty Images
UK Prime Minister Boris Johnson and India's Prime Minister Narendra Modi at Cop26 - Pool/Getty Images

Fossil fuel producers have been blocked from a formal role in the meeting but are keen for the Government to recognise the importance of energy resilience and the risk of cutting too fast.

The oil and gas industry is waiting to see if approval will be granted for drilling at the Cambo oil field in the North Atlantic, thought to contain more than 800 million barrels of crude, with a decision expected before the end of the year.

Climate groups claim the scheme risks undermining Mr Johnson’s promise to lead the charge in cutting carbon emissions globally.

BP recently faced its own controversy over plans to extract oil from the Vorlich field, in the North Sea.

The company faced a legal challenge against the scheme from Greenpeace but successfully fought it off last month.

Mr Looney said BP is still trying to convince experts that it can be part of the green energy transition, following complaints by the boss of Shell that his company was told it was not welcome at Cop26.

But he pointed to a string of investments in electric car charging points, hydrogen plants and wind farms as evidence that BP is taking the matter seriously.

Mr Looney said: “That is what a company like ours can do. So I understand there are some people who think we are not part of the solution, but I disagree with them."

He also argued that the company’s traditional fossil fuels business was helping to provide the financial firepower needed to make the long-term switch to renewables.

Some investors are pushing energy firms to split off their green energy arms, with Shell under pressure from the activist Daniel Loeb.

Mr Looney said he had faced no such calls from BP’s investors but claimed some renewables-only firms are struggling to fund their growth. In contrast, oil and gas companies can divert their vast financial reserves into green power.

BP said on Tuesday that its profits had boomed in the third quarter as a jump in demand from reopening economies caused oil and gas prices to surge.

Mr Looney said demand had turned the business into a "cash machine", with the company's power trading business delivering a “strong” performance.

The FTSE 100 business made pre-tax profits of $6bn (£5bn) in the period, compared to $1.2bn a year earlier when demand had slumped due to the pandemic.

It announced a further share buyback scheme worth $1.25bn and said that buybacks should now amount to around $1bn per quarter, with oil above $60 per barrel.

BP said it expects gas markets to remain tight during the winter and oil prices to stay high as more crude is used for power generation rather than gas.

Shares fell 2.3pc to 348.9p, valuing the company at £70bn.

North Sea oil's future hinges on drilling decision

Greenpeace members protest outside Downing Street against potential drilling in the Cambo oil field - Hasan Esen/Anadolu Agency
Greenpeace members protest outside Downing Street against potential drilling in the Cambo oil field - Hasan Esen/Anadolu Agency

Boris Johnson has been keen to portray himself as a champion of net zero willing to take tough decisions in the interests of the greater good.

But after the fanfare of Glasgow’s climate summit is over and the last of the world leaders’ private jets have left, the prime minister faces a dilemma that stands to test that.

For weeks, the oil industry has been waiting for a ruling on whether drilling can start at the giant Cambo field more than 100km north-west of the Shetland Islands – home to an estimated 800m barrels of crude and crucial to the future of the European industry.

An exploration licence for the site in the North Atlantic was approved in 2001 but the Oil and Gas Authority – a Government body under business secretary Kwasi Kwarteng – is now considering whether energy giant Shell and private-equity backed Siccar Point Energy can begin to drill.

A decision, expected before the end of the year, could be seen as defining whether the Government’s actions match their words on reaching net zero.

The companies argue the project will help to limit the UK’s reliance on foreign energy imports and smooth the transition to renewable sources of power.

But the plans have outraged climate activists, who say that giving the green light will set an appalling precedent just as Britain is asking other nations to kick their fossil fuel habits. It has set a predicament that could cause serious headaches for ministers - whatever happens.

Shell is understood to be ready to withdraw investment from Cambo if the Government does not approve it, and is expected to divert those funds to other territories if ministers do not unequivocally support the project.

“If the Government of the UK wants to supply at least part of its energy needs with domestic resources, then it should develop projects like Cambo,” Shell boss Ben van Beurden said last week.

“If you say ‘We’re not going to develop our national resource… we don’t want any part of that, let us just import it from elsewhere’, how does that make sense?”

BP, meanwhile, was dragged through the courts by Greenpeace last month over its bid to drill at the Vorlich field in the North Sea – though it successfully fought off the challenge.

It prompted boss Bernard Looney to echo van Beurden’s concerns on Tuesday as he warned the Government not to “prematurely” halt oil and gas projects.

"If you take away supply and demand does not change, the only thing that happens is prices go up”, he said.

Looney points out that while BP maintains a string of facilities in the North Sea, it is also investing cash into car charging stations, hydrogen plants and wind farms that are set to power the UK’s energy revolution.

The issues are emblematic of the situation facing ministers as they seek to navigate the difficult transition to net zero.

On one hand, they have promised to drastically cut the UK’s carbon emissions over the next three decades by ploughing investment into renewable sources of energy such as solar, wind and hydrogen.

But on the other, they are faced with the uncomfortable truth that fossil fuels will carry on playing a role in Britain’s energy mix for some years yet – not least with gas still supplying around 36pc of the national electricity supply.

Gas and electricity prices have soared in recent months, sending consumer bills higher and tipping small suppliers into bankruptcy as an unusual lull in wind speeds across Europe made Britain even more reliant on fossil fuels. It has triggered fresh questions over the UK’s energy security just as pressure is mounting to ban new oil and gas fields.

Earlier this year the Government announced a “North Sea Transition Deal” to work with the offshore oil and gas sector to protect 40,000 jobs in its transition to greener technologies such as carbon capture.

While seen as a stepping stone in helping support the industry as it changes, ministers are yet to set out rules that will dictate whether new oil and gas projects can go ahead.

Meanwhile they are consulting on a checklist that would judge whether schemes are compatible with the UK’s target of hitting net zero by 2050.

Alok Sharma, the Government’s lead minister for Cop26, was evasive when recently asked if the Cambo proposals would meet this threshold.

“We’ve said that in terms of granting any future licences, there will be a climate compatibility checkpoint and any licences that are granted will have to be compatible with our legal requirement to be net zero by 2050,” he told the BBC’s Andrew Marr show

“That [Cambo] is something that is being considered.”

Deirdre Michie, chief executive of Oil and Gas UK which represents the industry, argues that using resources off Britain’s shores “can boost our energy security and protect jobs”.

“The UK industry’s own greenhouse gas emissions, generated during production from these new fields, would also be a lot lower than those generated by liquefied natural gas imports.

“We will need gas to power us through this green transition. It would be far better to get as much of that gas as possible from sources we can control, rather than rely on other countries.”

The debate is likely to become more urgent with senior oil industry sources expecting the squeeze on European gas supplies to last several years. Production in the region has been cut by 20pc over the last two years against a backdrop of rising demand as coal plants are closed.

And even if mild winters allow gas storage facilities to be refilled, Europe faces an annual energy "tightrope" until renewable and nuclear capacity is increased.

If ministers want to keep the lights on, some tough decisions will have to be made - and soon.