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BP’s planned sale of its Aberdeen-based North Sea business, ending its six-decade pioneering history in the mature basin, has delivered yet another wake-up call to a city down on its luck. The oil major last week argued that other countries offer greater value and opportunity as it streamlines its portfolio and seeks to reduce debt.
“BP leaving is an iconic moment — others will need to step up if we are going to make the most of the national asset which is the North Sea,” says Iain Lewis, chief financial officer of Ithaca Energy, who declined to comment on the BP sales process. “It raises the question of the competitiveness of the basin full stop when another significant investor walks away.”
While expected by many in the industry, BP’s exit has also intensified scrutiny of Andy Burnham’s promotion of his “pragmatic” approach to oil and gas, including to Donald Trump — the world’s most famous advocate of opening up the “treasure chest” of the North Sea.
The energy industry believes declining North Sea production could be eased by reforming what it describes as a punitive 78 per cent headline tax rate while speeding up regulatory approvals for oil and gasfields such as Rosebank and Jackdaw. That, it hopes, would clear the path for further projects carried out by independent producers still active in the basin as majors depart.
The process of approving these fields, which was challenged in the courts for not having considered the emissions caused by burning these fuels, is coming to a head as public consultations close this month. That decision will land on the desk of energy secretary Miatta Fahnbulleh, who has previously argued for net zero targets to be brought forward. She is an ally of her predecessor Ed Miliband, who became unpopular in Aberdeen for his promotion of renewables over fossil fuels.
Given continued demand for oil and gas through the transition, the Aberdeen and Grampian Chamber of Commerce argues that prioritising domestic sources benefits energy security while reducing reliance on more emission-intensive imports. “Importing hydrocarbons while leaving our own hydrocarbons in the ground makes no sense,” says Lewis.
The optics of delivering a new fiscal regime for fossil fuel companies reporting stellar profits because of the war on Iran is another challenge. The UK Treasury has been working with industry on draft legislation to replace a current “windfall” energy profits levy with an alternative that would impose a 35 per cent charge on oil and gas sales revenue above $90 a barrel and 90p a therm, respectively.
The new fiscal regime aims to tax windfall profits while keeping investment incentives intact. Industry executives hope that the domestic resilience argument will blunt growing environmental concerns about new North Sea drilling, just as devastating wildfires sweep across Europe and the UK.
Climate activists are urging the Burnham government to reject the Jackdaw and Rosebank applications. “Chasing ever-diminishing reserves has allowed successive governments to kick the can down the road instead of investing in new industries,” says Tessa Khan of anti-fossil fuel campaign group Uplift.
Business leaders and campaigners tend to agree that the renewables industry is the key to Aberdeen’s future. But slowing momentum in Scotland’s offshore wind sector is alarming supply chain executives who have been banking on the £26bn predicted spend on 16 planned offshore projects.
The promise of manufacturing and operational contracts is not materialising at the pace previously expected as offshore wind projects in northern Scotland struggle to progress. They blame the competitive disadvantage of UK transmission charges that encourage generation closer to English centres of demand — another thorny issue in Fahnbulleh’s in-tray.
Only two Scottish offshore wind projects won “contracts-for-difference” that provide top-ups for developers in a recent auction by the government. Few expect many of them to apply for the upcoming auction round later this year.
And as offshore engineering expertise moves abroad, the transition to renewables will be threatened if the supply chain loses out on work through the rest of the decade.
Scottish business will hope Burnham takes such issues into account and that the prime minister’s vision of “growth in every postcode” extends north beyond Manchester.
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