Miliband’s North Sea crackdown seems more senseless than ever

Ed Miliband and Donald Trump have never been political bedfellows. But on the North Sea, it is no longer just the American president who is at odds with the Energy Secretary.

As the war in the Middle East convulses global oil and gas markets, Labour’s crackdown on home-grown production is facing mounting opposition from all sides – including from people once sympathetic to Miliband’s net zero cause.

The Government’s ban on new drilling licences and its swingeing windfall tax have been blamed for crippling the UK’s domestic industry while also reducing tax revenues and pushing up carbon emissions.

It’s a self-inflicted blow that is now prompting opposition from surprising directions – leaving Miliband looking increasingly isolated.

Among those advocating a “drill, baby, drill” approach are not just Kemi Badenoch, the Conservative leader, and Nigel Farage, the Reform leader, but also Sir Tony Blair, the former Labour prime minister – who has described the current position as “climate theatre”.

Within the energy industry, there are also calls for a more “pragmatic” approach from people who would normally be Miliband’s allies.

In recent weeks, even green energy evangelists – such as the bosses of Octopus Energy and wind farm trade body RenewableUK – have backed greater North Sea production.

“It puts Ed in a very tight spot,” says one energy industry executive.

The Energy Secretary insists that boosting domestic production is pointless because it cannot make a “material difference” and won’t bring down household energy bills. “Our reliance on fossil fuels is costing us,” he said in a recent interview.

Trump has attacked Britain’s strategy, saying the UK is making a “big mistake” by turning its back on the North Sea.

Yet at the heart of the debate are also questions about energy security, tax revenues, jobs and carbon emissions, issues that experts say have been relegated in the name of dogma.

After the outbreak of war in Iran plunged global energy supplies into chaos and with Britons facing up to the prospect of soaring household bills, Miliband’s personal crusade seems more destructive than ever.

Energy crisis

Despite Miliband’s pledge to get Britain off the fossil fuel “rollercoaster”, oil and gas are set to remain a fixture of the country’s energy supplies for decades to come.

About 75pc of the UK’s primary energy still comes from oil and gas (70 million tonnes of crude oil and 65 billion cubic metres of gas) and this will take time to undo, with most of the existing demand stemming from transport and gas heating.

But even if the UK gets close to net zero by 2035, it will still consume nearly 40 million tonnes of oil and 30 billion cubic metres of gas.

Yet one key difference will be where it comes from. Over the next decade, imports are expected to rise steadily as domestic North Sea drilling finally runs out of steam.

By 2035, a scenario sketched out by the National Energy System Operator suggests two fifths of our gas supplies will probably come from Norway.

The other three-fifths will be split more or less evenly between domestic production and foreign shipments of liquefied natural gas (LNG), which mainly comes from the US, Qatar and Australia.

Global supplies have been upended in recent weeks by the outbreak of war in the Middle East. The effective closure of the Strait of Hormuz, a crucial choke point through which a fifth of global oil and LNG supplies usually travel, has plunged the market into chaos.

Iran’s attacks on energy facilities in the Gulf are making matters even worse. The Iranian regime hit Ras Laffan this week, a large Qatari facility that produces around a fifth of the world’s supply of LNG, with missile strikes.

Saad al-Kaabi, the Qatari energy minister, said the attacks knocked out roughly 17pc of the Gulf state’s export capacity and warned the impact would last up to five years.

Yet LNG is not a straightforward substitute for domestic gas.

It is both more expensive and results in higher carbon emissions. The carbon footprint of North Sea gas is probably around 15pc lower overall, according to analysis by the website Carbon Brief.

Many experts and industry figures argue that producing more oil and gas at home would, ironically, be better for the planet.

Between now and 2050, the North Sea’s output is expected to fall by about two fifths, down from 3.6 billion barrels to just 2.1 billion barrels, according to investment bank Stifel.

That is a direct result of the Government’s crackdown. Its tax – known as the Energy Profits Levy – was introduced in 2022 after Russia’s invasion of Ukraine. The current 38pc rate means total tax for the sector is 78pc – which many producers say is unsustainable.

“At the moment, it’s like you’ve got a big sign up to investors saying, ‘We hate you’,” says one oil industry source.

It is also why Stifel expects the number of oil and gas jobs to halve this decade, to 100,000 by 2029.

Offshore Energy UK (OEUK), which represents oil and gas firms, is lobbying ministers to change course and replace the windfall tax with a new mechanism that is predictable and adjusts tax rates automatically based on prices.

A new tax rate linked to price could generate more than £20bn in net additional tax revenues in the next decade, according to Stifel, while also protecting energy security.

Criticism ‘goes off like a grenade’ in Whitehall

These considerations have taken on even greater urgency as Britain faces up to the prospect of surging energy bills.

EnergyUK, a trade body, has warned that household bills could jump by £250 a year from July as a result of the Iran war. It has urged the Government to “immediately step up efforts” to support those who would struggle most when energy costs rise.

Miliband has said he will intervene to support struggling households if necessary. Ministers have already committed £50m to help families struggling with the soaring cost of heating oil.

As a result, calls to step up North Sea production are now making headway with Miliband’s allies in green energy as well.

None are swearing off renewables – far from it. But their comments have caused friction by questioning why the Government cannot pursue an “all of the above” policy that combines clean energy investment and making the most of the North Sea.

This would slow the rate of oil and gas job losses, generate extra tax revenue, reduce Britain’s dependence on imports and lead to fewer carbon emissions, advocates say, instead of accelerating the basin’s decline.

Jürgen Maier, who runs the quango Great British Energy, warned in September that Aberdeen’s once-thriving oil and gas sector was currently “haemorrhaging” jobs.

He stressed oil and gas were “our foundation”, cautioning: “This isn’t about oil and gas or renewables; it’s about oil and gas and renewables.”

Shortly after, the boss of Octopus Energy, Britain’s biggest household supplier of gas and electricity, confessed that as long as gas was needed, he saw no problem with producing it domestically.

“When we’re shipping LNG around the world, it is a lot dirtier than using locally produced gas,” Greg Jackson told The Telegraph.

He has stressed that the North Sea is in decline and “not a panacea”, but that the UK needs “more sovereign energy, and this requires practical, pragmatic decisions”.

“It makes sense to use what we have while we’re so dependent on gas,” Jackson said.

Chris O’Shea, his arch-rival at British Gas owner Centrica, has made similar points as well, saying the gas produced domestically “will often be cheaper than the gas you import”.

Even more surprising, however, was the intervention on Monday by the chief executive of RenewableUK, which represents Britain’s wind farm developers.

Writing for The Telegraph, Tara Singh, a former adviser to the Government and oil giant Shell, called for energy to be taken “out of the culture wars”, in what was seen as an implicit criticism of Miliband.

Like others, Singh was careful to stress that renewables should remain the priority and that the North Sea’s resources were limited and “will not deliver cheap energy”.

Yet her intervention still went “off like a grenade” inside the Government, and Miliband and his advisers are said to be furious, according to one Whitehall source.

They have been similarly enraged by interventions from Blair’s think tank, which has issued warnings – endorsed personally by the former prime minister – that Labour’s approach to the North Sea is making Britain less secure while doing little to tackle climate change.

“In a country responsible for less than 1pc of global emissions, that is not climate leadership – it is climate theatre,” a report in February said.

Tone Langengen, an energy expert and the report’s author, believes the UK is “taking an ideological approach to energy” that favours posturing over sound policymaking.

“The UK is only a small portion of global emissions,” Langengen explains. “So the fact we are [restricting North Sea production] is not going to stop other countries from utilising their own resources and it won’t change our role on the international stage.”

In fact, Sir Dieter Helm, professor of economic policy at Oxford University, has quipped that other countries are probably wondering “how Britain has ended up in such an unenviable position”.

He points out that under Miliband’s clean power plans, which will see the grid rely on renewables for 95pc of electricity by 2030, gas is still the lynchpin of the system, providing crucial backup supplies when wind and solar output falls.

And yet the Government is failing to secure supplies through storage, support for domestic production or measures to protect undersea infrastructure, Helm warns.

“Since we are going to burn lots of gas for a long time to come,” he says, “why would it be sensible to close off the development of Britain’s own North Sea gas reserves and penalise existing production with extremely high taxes?”

According to one well-connected industry source, support for more North Sea drilling is widespread among energy executives but many feel the issue has become overly politicised and risky to discuss in public.

That is only becoming more glaring as the Iran crisis brings concerns about energy security back to the fore, while ministers insist that drilling in the North Sea cannot help.

“Whether you are in clean energy or fossil fuels, there’s a consensus that it does not make much sense to curtail your domestic output at a time when you really need it,” says the industry source. “Particularly when it can reduce dependency on gas shipments coming in from the US, Qatar and elsewhere.”

“It’s just ideology. There’s no technical basis to it,” the industry source adds.

Labour’s union backers are also up in arms about the North Sea, with Sharon Graham, the Unite leader, accusing Miliband of presiding over a jobs bloodbath that has failed to deliver on the promise of employment for all workers in renewables.

“Ed Miliband says to me, ‘Look at all these new wind farms’, and I say, ‘Where are the jobs?’ The turbines are all manufactured in Denmark and Germany,” she says.

Gary Smith, the head of the GMB union, has also warned Labour it risks “hollowing out” communities with its approach.

By comparison, most energy bosses see little benefit in putting their heads above the parapet – particularly when doing so could put them in the crosshairs.

“The problem is that this is a personal political project of Ed Miliband,” the industry source adds. “Whereas for most businesses it’s not an end-of-the-world issue, it infuriates Miliband and his team every time someone speaks out.”

A dangerous fantasy?

From the other direction, however, Miliband is under pressure to stand firm from academics, Left-wing politicians and climate activists.

Tessa Khan, executive director of anti-fossil fuel campaign group Uplift, says talk of “maxing out” the North Sea is a “dangerous fantasy” and that cutting the windfall tax on companies would be “tone-deaf” when bills are going up.

She and others have argued instead for an acceleration of investment in renewables to wean Britain off fossil fuels more quickly.

Lily-Rose Ellis, of Greenpeace UK, agrees that “more drilling for oil and gas in a largely drained North Sea can’t be the solution”.

“More wind and solar can help us cut gas imports much faster than issuing new gas licences in the North Sea,” she says.

Researchers at Oxford University also published a new analysis on Tuesday claiming more North Sea drilling could theoretically save households £82 per year if the tax revenues were redistributed.

But they claimed renewables were better value and could deliver savings of up to £441 per year, if most households also switched to using electric cars and heat pumps.

Perhaps more importantly, though, are the political pressures on Miliband, who risks being accused of betrayal by Labour’s Left-wing as well as rival politicians in the Green Party.

A ‘holy’ mission

Dale Vince, the multi-millionaire Ecotricity tycoon and major Labour donor, says the “worst thing this Government could do would be reversing course on the North Sea”.

“A lot of people voted Labour because they were going to ban new oil and gas drilling in the North Sea,” he says.

“I spent a lot of time persuading Green supporters that Labour were the party to vote for because they had a chance to form a government and could put this into action.

“So it would be a disaster to cave in to these self-interested demands from oil lobbyists and shareholders.”

Carla Denyer, a Green MP and the party’s energy spokesman, says Britain needs to “transition to clean energy as quickly as possible” to protect itself from future oil shocks.

Her party is more Left than Labour on tax, arguing that oil and gas companies should be squeezed until the pips squeak. In Denyer’s view, the current regime – far from being harsh – is too lax and contains “loopholes”.

“Why should highly profitable polluters be allowed to rake in record profits while our bills shoot up?” she says.

The Green Party has also been quick to leap on the Iran crisis as evidence that the UK should transition to green energy as quickly as possible to shield the economy from future oil shocks.

Against this backdrop, there is little sign so far that Miliband is prepared to budge.

The Energy Secretary grudgingly agreed in November to allow so-called “tieback” developments to go ahead – oil and gas fields that are adjacent to existing licenced sites – but officials claimed this had always been Labour’s policy.

Pressed on why he was “leaving revenue in the ground” in a recent LBC Radio interview, he said: “I don’t see it that way at all. As I explained, new licences won’t make a material difference.

“I think the North Sea has produced important revenue, but I think our excessive dependence on fossil fuels has been a massive problem.”

One person who regularly speaks to the Government says Miliband’s commitment to the climate cause remains unshakeable.

“This is something that is holy to him. And that has meant it is very difficult for him to pivot and it has made him quite blinkered,” the person says.

Still, Miliband’s arguments appear to be winning the day inside the Government, with the former Labour leader widely seen as one of the most powerful Cabinet figures.

Sir Keir Starmer and Peter Kyle, the Business Secretary, are among the ministers who have dutifully trotted out his media lines on the North Sea, including pledges to “double down” on net zero.

Meanwhile, a poll of Labour members last month found Miliband was the most popular Cabinet minister, with an approval rating of +70, which is nearly 20 points higher than his closest competitor.

It has left his position looking unassailable, with Miliband reportedly refusing to be reshuffled into another job last year in defiance of the PM.

Yet there are signs of growing discontent in the Cabinet over the squeeze on the North Sea.

At the Labour Party conference last year, Rachel Reeves confided to business leaders that she was “not a zealot of green energy” and she would “prefer us to be using oil and gas from the UK than importing in from overseas”.

More recently, the Chancellor is understood to have told producers in person that she was sympathetic to their concerns.

She has suggested the Treasury is open to reforming the windfall tax and replacing it with a more permanent measure that would automatically impose higher tax rates when prices hit certain levels. The rate would then fall if prices returned to lower levels.

That change, which would impose a tax rate of 75pc on companies under current conditions, has been described by industry insiders as a “permanent windfall tax” but is also seen as a preferable option to the current setup because of the greater certainty it would provide.

At the meeting with oil and gas firms, Reeves is also understood to have made clear that the current energy crisis makes scrapping the windfall tax politically difficult.

For now, it means the North Sea remains in limbo, with an estimated 1,000 jobs being lost every month, according to OEUK.

But with Miliband’s position looking increasingly isolated, there is speculation that Labour could be set for yet another embarrassing about-turn.

“People from across the political spectrum are waking up to the fact that Ed Miliband’s dogmatic opposition to our domestic energy supply is making us weaker, poorer and less secure,” says Claire Coutinho, the shadow energy secretary.

Coutinho adds: “This is not a Left or Right issue – it is a right or wrong issue.

“Miliband is on the wrong side of this debate and it is high time he wakes up to the crisis we are facing before he causes the death of the British oil and gas industry.”

There is another argument, of course, that the row over the North Sea is actually a distraction from the bigger picture.

Emma Pinchbeck, the chief executive of the Climate Change Committee, says the biggest levers the Government can pull to cut carbon emissions are on heating and transport, where electric technologies will ultimately be more efficient to run and can reduce our exposure to oil and gas prices.

“We need to spend a lot more time thinking about demand,” she says. “That is the more straightforward way to help make the UK resilient to future price shocks.”

Pinchbeck adds: “The challenge today is not running out of energy – it’s the exposure to global prices. The North Sea can’t really protect us from that.

“What you can do is reduce your demand for the thing that costs more money, and the quickest way that you can do that is through electrification of demand.

“We should be having more of a conversation about how we use energy in the system, not just where it comes from. That is the lesson we learned in the last price shock.”

The Government said suggestions that Miliband’s policies were dogmatic and would make the country poorer were “categorically untrue”.

A spokesman added: “Issuing new licences to explore new fields cannot give us energy security and will not take a penny off bills.

“Regardless of where it comes from, oil and gas are sold on international markets, which set the price for British bill payers – making us a price taker.

“The only way to truly protect ourselves from these price spikes is to get off the rollercoaster of fossil fuel markets.”

[Source: Daily Telegraph]