As Andy Burnham prepares to take the reins as the new Prime Minister of the United Kingdom, the energy sector is poised for significant scrutiny. Anticipation is building around his potential policy announcements regarding North Sea oil and gas drilling, with reports indicating that he will adhere to Labour’s 2024 manifesto pledge, which prohibits new oil and gas licences while honouring existing ones. However, a nuanced approach may be on the horizon as Burnham seeks to balance environmental concerns with energy security demands.
Commitment to Existing Licences
In the lead-up to Burnham’s premiership, Labour’s deputy leader, Lucy Powell, confirmed that the incoming Prime Minister would remain committed to the party’s previous manifesto pledges. Speaking on BBC with Laura Kuenssberg, Powell noted a “change of emphasis” towards North Sea oil and gas. She asserted that ensuring long-term energy security and reduced bills necessitates developing homegrown, clean energy sources while acknowledging the vital role that North Sea gas and oil play in the transitional mix.
“This is an important part of the mix,” Powell stated, adding that Burnham’s strategy would involve a pragmatic cooperation with the industry to facilitate the energy transition while maintaining existing production capabilities.
The Dilemma of New Drilling Approvals
Burnham’s first days in office will not see approvals for controversial drilling projects like the Rosebank and Jackdaw fields. Although the previous Conservative government greenlit these projects, they are now under review due to a successful legal challenge from environmental groups, including Greenpeace and Uplift. These organisations argue that the full climate implications of fossil fuel extraction were not adequately considered.
Despite existing production facilities on both sites, the Offshore Petroleum Regulator for Environment and Decommissioning (Opred) is currently conducting a comprehensive review, which is nearing completion. Public consultations are set to close in August, and any premature decisions could result in further legal complications for the government.
Exploration Licences and Industry Concerns
Beyond the immediate challenges of specific projects, Burnham will face broader questions surrounding oil and gas exploration licences. The Labour manifesto’s commitment to banning new licences has already been partially implemented by Energy Secretary Ed Miliband, who has allowed “tie-backs”—production in unlicensed areas adjacent to licensed ones. While this concession does not contravene the manifesto, any further deviations could provoke backlash.
The appetite within the oil and gas industry for broad exploration is waning, as major companies like BP, Shell, and TotalEnergies have been divesting their assets to smaller operators focused on maximising output from existing fields rather than exploring new territories. This shift raises questions about the viability of new exploration initiatives and the long-term strategy for the North Sea.
Financial Considerations: The Energy Profits Levy
Another critical issue on Burnham’s agenda is the Energy Profits Levy (EPL), introduced during the spike in oil and gas prices following Russia’s invasion of Ukraine. The EPL, which carries a steep headline rate of 78%, has drawn criticism from the industry for making the North Sea less appealing to investors. Evidence suggests that investment has significantly declined, exacerbating concerns about the sector’s future.
As the EPL is set to transition to a new windfall tax in 2030—one that adjusts according to market prices—Burnham’s handling of this tax will be pivotal. While it represents a less contentious option that could stimulate investment and job creation, it also lacks the political allure of other pressing issues.
Why it Matters
The decisions made by Prime Minister Burnham regarding North Sea oil and gas will have far-reaching implications, not only for the energy landscape but also for the UK’s commitment to climate goals. The balance he strikes between fostering energy security and addressing environmental concerns will define his leadership and shape the future of the UK’s energy policy. As the nation grapples with the dual challenges of energy transition and economic stability, Burnham’s approach may serve as a litmus test for the Labour Party’s broader ambitions in the face of a rapidly changing global energy market.