The Impact of Labor Leader Sir Keir Starmer’s Energy Policy Speech

Introduction

Labor leader Sir Keir Starmer recently made a landmark speech on energy policy in the UK. In his speech, he outlined plans to end the issue of new oil and gas licenses if Labor gains power. While this move aims to address environmental concerns, it may have unintended consequences for the production of oil and gas in the country.

Short-Term Implications

One immediate outcome of Labor’s proposed ban on new licenses is that it could actually make it easier for existing oil explorers to turn on the production spigots. Since the ban won’t revoke any permits issued before the next general election, oil explorers may feel more confident in moving forward with major new projects that are already in the late planning stages.

One such project is the 300 million barrel Rosebank oil project west of the Shetland Islands, led by the Norwegian company Equinor. The clarity provided by Labor’s announcement may encourage further investment in these projects, boosting production in the short-term.

Long-Term Consequences

However, despite the short-term benefits, Labor’s proposed ban on new licenses offers yet another reason for oil and gas investors to explore opportunities outside of the UK. This could lead to a decline in investment and job losses in the industry.

Since the introduction of the windfall gains tax in the UK, shares of UK-focused oil and gas producers have fallen sharply. Companies like Harbor Energy, Serica, and Ithaca have seen their valuations drop significantly, well below multi-year averages. The aggregate UK producers’ tax rate has increased from 40% to 75%, further impacting the profitability of these companies.

Additionally, the recent introduction of a complex plan for the withdrawal of drilling licenses has caused further uncertainty. The US company Apache, for example, has decided to halt its drilling activities in the UK’s North Sea. These developments could potentially drive oil and gas company cash flows away from the UK, hindering the transition to cleaner energy sources.

The Opportunity for Remaining Companies

On the other hand, the withdrawal of some oil and gas companies from the UK could create opportunities for those who choose to remain. Asset valuations are currently cheap relative to oil and gas reserves, and companies that are able to weather the challenging environment may find attractive investment opportunities.

Many UK-focused companies rely on extracting more barrels from existing fields, often through drilling new wells near resources. However, a new licensing ban could potentially impact these “brownfield” projects, further complicating the situation for oil and gas producers in the country.

Conclusion

Labor’s stance on ending new oil and gas licenses in the UK has both short-term and long-term implications. While it may provide clarity for existing oil explorers and lead to increased production in the short-term, it could also drive investment and cash flows away from the UK in the long run. The uncertainty and potential constraints on brownfield projects add to the challenges faced by UK-focused oil and gas companies.

Overall, it remains to be seen how Labor’s proposed ban on new licenses will shape the future of the oil and gas industry in the UK. It is important for policymakers to strike a balance between environmental considerations and the economic impact on the industry.

Additional Piece

The energy landscape is rapidly evolving, with increasing pressure to transition towards cleaner and more sustainable sources. Labor’s proposed ban on new oil and gas licenses in the UK is just one example of the global push to reduce reliance on fossil fuels.

While this shift is necessary to combat climate change and protect the environment, it also presents unique challenges and opportunities for industries and economies heavily dependent on oil and gas. The UK, as a major player in the global energy market, needs to carefully navigate this transition to ensure a smooth and successful shift towards cleaner energy sources.

One potential concern with Labor’s proposed ban is that it could lead to a decline in investment and job losses in the UK’s oil and gas sector. While the intention behind the ban is to encourage the development of renewable energy projects and reduce carbon emissions, it is important to consider the economic implications of such a policy.

However, the withdrawal of some oil and gas companies from the UK could create opportunities for those that remain. These companies may benefit from lower asset valuations, allowing them to acquire assets at cheaper prices and potentially expand their operations.

Furthermore, the transition towards cleaner energy sources presents opportunities for innovation and diversification. The UK has the potential to become a global leader in renewable energy technologies, creating new jobs and driving economic growth in these emerging sectors.

It is crucial for policymakers, industry stakeholders, and environmental advocates to collaborate and find common ground. Balancing the need for a sustainable future with the economic realities of the present is a complex task, but one that is necessary for long-term success.

Summary

Labor leader Sir Keir Starmer’s landmark speech on energy policy, which proposes to end new oil and gas licenses in the UK, has both short-term and long-term implications. While it may provide clarity for existing oil explorers and boost production in the short-term, it could also drive investment away from the UK in the long run. The ban also raises concerns about job losses and the impact on the economy. However, the transition to cleaner energy sources presents opportunities for innovation and diversification, allowing the UK to become a global leader in renewable energy technologies.

The promise to end oil and gas exploration in the UK’s North Sea shouldn’t make it easier to turn on the production spigots. Ironically, this is likely to be the immediate outcome of Labor leader Sir Keir Starmer’s landmark speech on energy policy on Monday.

The work plans to end the issue of new oil and gas licenses if it gains power. However, he will not revoke any permits issued before the next general election. Such a move would have caused a legal headache for a newly elected government.

The clarity should give oil explorers the confidence to move forward in the coming months with major new projects in late planning stages. These include the 300 million barrel Rosebank oil project west of the Shetland Islands, led by the Norwegian Equinor. But in the long run, Labour’s proposed ban offers yet another reason oil and gas investors to do some exploration on their own outside the UK.

Shares of UK-focused oil and gas producers such as Harbor Energy, Serica and Ithaca have fallen sharply in the 13 months since the UK’s windfall gains tax was introduced. Valuations are well below multi-year averages. Serica Energy’s shares are trading at half of its already economic 5-year five-year average.

The extraordinary levy, first introduced in May 2022, raised the aggregate UK producers’ tax rate from 40 to 75%. This month’s introduction of a complex plan because the withdrawal certainly did not improve the mood. US Apache is halting British drilling in the North Sea despite recent amendments. Job losses could follow in Aberdeen. Harbour, the UK’s largest oil and gas producer, had previously been looking for investment opportunities overseas.

True, more companies withdrawing from the UK could create an opportunity for those left behind. Asset valuations are cheap relative to oil and gas reserves. They could stay that way. Labor has already talked about backdating the levy to early 2022, although there was no such mention on Monday.

Many UK-focused companies rely on squeezing more barrels from existing fields. They often do this by drilling new wells near resources. This type of “brownfield” project could be affected by a new licensing ban.

Labour’s stance only adds to the uncertainty and the possibility that oil companies’ cash flows will leave the UK altogether, rather than towards the cleaner sources of energy the party would prefer.