Drill, Kemi, drill! Are Tory oil and gas plans a load of hot air?

0:00Hello, Ed Conway here. Here is what might sound like a slightly random question. What do AirPods, bananas and a pair of shoddily made running trainers from the 1970s have in common? On the surface, not very much. But on my podcast, Stuff Matters, I will uncover the deeper stories behind each of them. You will see how together they tell a fascinating new story about the world we live in. The first full series of Stuff Matters is out now. Just search for it on your podcast app and follow. Kemi Badenok wants to drill baby drill, today announcing if elected, she'd reopen the North Sea for more oil and gas extraction.

0:40But is it a load of hot air? I'm Kamali Melbourne with the Sky News Daily. Hello, Ed Conway here. Here's what might sound like a slightly random question. What do AirPods, bananas and a pair of shoddily made running trainers from the 1970s have in common? On on my podcast Stuff Matters, I will uncover the deeper stories behind each of them. You will see how together they tell a fascinating new story about the world we live in. The first full series of Stuff Matters is out now. Just search for it on your podcast app and follow.

1:21Conservative leader Kemi Badenok wants to clean out the North Sea of all its oil and gas. New licenses are currently banned. With the continued drive to lower our carbon emissions and move away from fossil fuels, the idea doesn't seem very climate friendly. But what about the economic case? Well, Paul Kelso is our business correspondent and can help us try and answer that. She is, I think, trying to put a little bit of clear North Sea water between herself and Labour and perhaps catch a tide that's seen reform move in this direction too. She's expressed net zero skepticism already. What she's saying here specifically, she's been telling the North Sea industries, which include oil and gas and also include offshore wind, interestingly, the group she's talking to, is that she's going to end the current ban on any new licensing of new oil and gas exploration in Britain's North Sea in order to maximize extraction of oil and gas from the North Sea.

2:21The current government's policy is that there'll be no new licenses granted for extraction. And she says it's necessary because we are missing out on oil and gas that's in the ground that we will continue to need, even in a net zero future, the one she has disavowed. And the specific phrase that really struck me, she wants to make the North Sea and oil and gas the cornerstone of Britain's future. Now, this ban on new licenses, was that a continuation of what the previous government were wanting to do? Or is that a change the Labour government brought in? No, there is a lot of continuity, or there certainly was.

2:56Netzer itself is a Conservative policy. Essentially, the Labour government has looked to go a little further and a little faster than the previous government, but it said it would grant no new licences, though they did allow the ones that were already in the system to continue. So there will be new wells begun during this government, but there'll be no new ones as far as policy stands. So these new licences, how much oil, gas will they be able to extract? Is it worth the sort of the change in position? Actually, there is a consensus. There's not much left, as things stand, that we know about. The North Sea reserves are scraping the bottom of the oil barrel.

3:34Oil and gas production peaked at the end of the 1990s. Oil in 99, gas production in the North Sea in 2001. Since then, it has been in pretty rapid decline. We are talking about a very small amount, three and three quarter billion barrels of oil and gas remaining to be produced. It is a smidgen, to use a technical phrase. It is a very small amount of what we know is there. It is also of lower quality. It's harder to get to. It's more expensive. And it's actually more expensive to refine. So there's some left that we will still be using oil and gas. So they'll go into global markets and there'll be a use for it.

4:11But it's not game changing. And I think the phrase, the cornerstone of Britain's future, in terms of energy, as things stand, there just isn't the volume to certainly to make it a cornerstone. We've been net importers of oil and gas since 2004, which is part of the argument that's being made by the Conservatives, isn't it? That in a time of fuel insecurity, resource insecurity, it's better to have our own supplies. How much credibility do you give that argument? There are absolutely benefits to getting what we have out of the ground and using it, but they aren't about the price of oil and gas or the cost to you as a customer in your energy bill or at the pump.

4:51So the benefits are it maintains jobs. You do make some tax revenue. The Conservatives say around£12 billion in tax revenue over the next few years in this parliament will be foregone by the government from not extracting this oil and gas. there's a climate benefit too because while the reason the government has banned these new licenses is it wants to reduce emissions and that's the over that's the overarching point of the net zero project locally produced oil and gas produces less co2 the conservatives accept this will not bring your bills down because this oil and gas effectively goes into global markets where the price is set.

5:30And the shadow Energy Secretary, Claire Coutinho, has accepted today, it won't cut your bills. The Conservatives are accepting that it's not going to bring down bills, it's not going to make a massive amount of difference to the amount of oil and gas that we have available to us in this country. Why do they, at this point, 2025, feel the needs to really row back on these principles of net zero by 2050? It began before the last election with Rishi Sunak. You know, So net zero, we should just start at the beginning, is a conservative project. Theresa May was the prime minister who introduced this legal requirement to be net zero for carbon emissions by 2050.

6:09The targets for offshore wind were set by Boris Johnson. The shift has come, by my reckoning, essentially since the invasion of Ukraine by Russia, pushed up gas prices, caused this immense spike in everyone's energy bills. Now, we've come out the other side of that. Gas prices have stayed higher. But they are not currently the thing that's driving up bills. And this is where the conservators have shifted. They say that the cost of net zero, the perhaps hidden cost, if you don't fully explore some of this, is what is driving up bills. And the price cap that was just set last week, actually, was a very small increase, about£3 a month for consumers.

6:50but most of that was either discounts on energy bills for the low paid or the cost of maintaining the grid with renewables. I think the Conservative view is this is now pinching people. I won't speculate on where they think the political capital is but Reform have a very aggressive policy on this. They call net zero stupid and they will abandon the lot. Essentially the Conservatives' argument, certainly under Rishi Sunak it was go slower to the same place. Now it looks like go slower, destination unknown. Now, last week in an episode, you talked about wind turbines. Wind farms. All that power is produced in the north of Scotland, primarily.

7:27The demand is in the south. The grid can't always cope with managing, literally transporting that grid. So it pays wind farms to switch off. One of the perverse impacts of the energy transition. People hate it. Are we finding ourselves at a really difficult point here with this, Paul? I mean, we're going to be generating all this power and the bills aren't going to be coming down. It's going to be going on for quite a few years. Yeah, and I think that's perhaps why politically this is attractive and will chime with people is we're now in the difficult bit of the transition. In transition, we're crossing a road, aren't we?

8:00And we're on the one side of the road where our bills were kept down by or reflected essentially fossil fuels very directly. We need to get to the other side where the majority of our power is coming courtesy of free fuel, wind, sun, hydro, the like. But building the stuff we need to capture that free fuel is not cost free. One of the things that's happened is there's been a policy to grant a huge amount of permission and auctions which set guaranteed prices for power producers to build wind farms. Now, the place where that is most abundant is off the North Sea. But getting that power where it's produced in the North Sea to where it's needed, where the demand is in the south, requires transmission on the grid.

8:43And currently, the national grid has not expanded at the same rate as the amount of power. And part of the deal with these guaranteed prices to wind farms, not only do they get paid to switch off, but you sometimes have to pay a gas power station to switch on to balance the grid. Now, they try and avoid it, but the costs of that, hundreds of millions running into low billions, forecast to potentially increase if the grid doesn't get built. Because it's all right when they say that net zero is pushing up bills, The contributing factor in that we are paying to subsidise it, the argument from government, is that in the long run that doesn't just give us lower bills.

9:19And I think that is moot. I mean, Ed Miliband talked about£300 for every household. That really is moot at the moment. And it's hard to see a path to that. Kemi Badenoch is saying this today. You've already described reform's position on all of this. They think it's foolish and we're completely tearing up if they got near power. Do you expect for the government at any point to slightly change their position on this target of reaching net zero by 2050? Perhaps it depends which way the political wind blows and how much salience this gets, because it is going to be harder to maintain that bills are coming down.

9:57When they're not. When they're not. Yeah, you've got it. There you go. I think it's up in the air. But the one thing we should say is the direction of travel is clear. I mean, the answer to the UK's energy needs are not in the North Sea. There may be more to get. Many would say, let it play itself out. Let private capital go in there, speculate, do what it can. You're not going to make much difference. We are heading towards a renewable future. China, which has steepling emissions as it builds coal-fired power stations, it's the biggest renewables player in the world. So that is the direction of travel.

10:30It's all about a question of balance. and ultimately at the moment we're being asked to pay in advance for benefits that our children will enjoy. And when times are tight and budgets are tight, you know, perhaps we're going to hear more noise around this. Well, thank you for that, Paul. So, how will the industry react to Baden-Ock's announcement? Professor Paul DeLille has over 36 years experience in the global energy sector. He's worked for many of the big oil and gas companies. Now, he's the director of the Energy Transition Institute at Robert Gordon University in Aberdeen. We are a kind of thought leader in the space of how do we reposition the UK and other parts of the world for net zero and really moving from fossil fuel industry to the renewables and do us the best way to do it for the operators, developers, the workforce and the supply chain so we get there as fast as possible.

11:24Now, you're at this conference where the leader of the opposition, Kemi Badenok, is making her announcement. What do you make of this plan for her, for a Conservative government, to try and get all the oil and gas out of the North Sea? The theme of the conference is about unlocking the potential and accelerating the net zero agenda. That's what everybody's here to do. Kevin Beidnock had a very robust speech this morning, very much focused all around what can we do to make sure we unlock the potential of the North Sea as a cornerstone of UK energy policy. So that was very welcome. Also some elements that raised more debate, particularly the kind of departure from net zero, because, again, the industry is very much focused on providing the energy security, the renewable agenda, but also providing net zero.

12:11So overall, robust conversation, robust kind of message, but created quite a sparky debate afterwards. Robust is also a very diplomatic word for people saying something that perhaps gets disagreed with in the moment. How was it received in the room? Overall, they were well received. But remember, people come to work to provide the energy security the country needs, provide the jobs, provide the supply chain capacity and capability and get to net zero. So what they want to hear from the politicians is coherent policy, consistency, really give investor confidence so people can go after it and invest.

12:44So actually hearing the government saying one thing, opposition saying something else, makes it really hard for the investment community to figure out what the direction of travel is for the UK. The government, this one, previous governments had in mind net zero by 2050, no new licenses being granted. If in the event there was a conservative government in 2029, would the industry be able to turn itself around? So if you think about what's currently happening, as a nation, the UK consumes around two and a half million barrels of oil and gas every single day. We produce about a million in the UK, so 40 % produced here, 60 % is imported.

13:21it. And in this, he says, we can extend the production for quite a bit of time. We're never going to be self-sufficient. But at the moment, we are kind of declining faster than we need. And all we're going to do is take production away from the UK and import it. And it says, we lose the jobs, we lose the supply chain, and we're importing it at a higher carbon footprint. And we just think, actually, why is that the case? So some elements really well call around actually use oil and gas as a bridge. It will be declining. We There will be a smaller component of it. But in the interim, use what we have.

13:53That's what the industry is looking for. Clear policy, clear message. And other countries are doing it. Lipids happening in Norway. They're supporting the kind of oil and gas as a transition to the renewables. But take the money and the revenue the oil and gas is creating to accelerate the renewable agenda. Get the policy right. Make sure we use all our natural resources and get your lead zero. It is not a choice between oil and gas and renewables. We need all the energy we can get to kind of power the country, get to net zero, but do it in an environmentally sensitive way. And that's the real thing the industry is looking for.

14:24That's what investors are looking for. And that's the policy decisions they're looking for from government. From what you've said, Kemi Baden-Koch's rhetoric is kind of pushing an open door with you guys. But of course, she's not the person that is going to be making the decisions in the near term about this. Have conversations been had with government about this need? The government put in a number of key consultations. One is around the environmental impact of the industry. One is around building the future of the North Sea. One is around the fiscal regime. All these consultations happened and completed by May this year.

14:54And we're hoping for a very clear statement kind of after the summer recess and as Parliament returns this week to get real clarity what is going to happen. Because we need that clarity for the industry to work and to make sure we have a clear policy point forward so that we can invest with confidence here in the UK. Which firms are looking to invest or reinvest in the North Sea? Is it right that the big firms, Shell, BP and others, have actually pulled out of their projects in the North Sea? Oil and gas peaked in the UK in 1999, 2000. We're now 25 years later. It's been 25 years of decline. Decline is nothing new.

15:29We have seen different ownerships over the time. Again, the big companies like BP and Shell, as you correctly pointed out, are moving on to other parts of the basin and smaller companies who are far more bespoke at coming in to manage the kind of delayed life. That's a natural cycle of oil and gas. That doesn't mean that oil and gas doesn't play a key role. Still doing a million barrels a day, over 360 million barrels a year. In value terms, that's well over$20 billion worth of revenue to the UK economy. So this is a massively important industry. There's a lot of political focus on the industry because it's a cornerstone what's happening.

16:04One in 30 people in Scotland work or support the oil and gas industry, and one in two of us and 20 people across the UK work and support the oil and gas industry and the off-screen energy industry. This is a massively important industry and deserves a mature, balanced political conversation. One of the main things here is to bring people's bills down. We're not seeing bills going down at the moment. If this policy were to be enacted, if we were to get the rest of this oil and gas out of the North Sea, would people's bills come down? Would it be negligible? When can people expect that this transition will actually see people's household bills decreasing?

16:39Will it change the cost of oil and gas? And the answer is no, because the UK is such a small player. 0.6 % of the world production comes from the UK. We will not change global oil at best prices. We will not impact prices that way. But what we can do is provide energy resilience and make sure we utilize, particularly the skills, the workforce and the supply chain in oil and gas, use that capability to accelerate renewable and zend up. These skills are very transferable, particularly from oil and gas to carbon capture, to hydrogen to offshore wind. It's the same supply chain, same people doing the same task.

17:13So actually bridging that in a very managed, coordinated and fair way would be a very good energy policy could totally consist of what the government wants to do with their industrial strategy and getting to clean power by 2030. So there's a win-win for the country, more jobs, more supply chain, but it needs good policy, needs consistent support and it needs kind of a managed and just and fair transition. In the recent history, have you seen a change in the way that we think about our future when it comes to our energy mix. Have you seen a philosophical change in the industry as to how quickly we rush to this future?

17:49I've seen a couple of things, but there have really been shocks in the system. The first shock, which is, of course, everybody knows, is the Russian invasion in Ukraine, basically switching off a huge amount of gas coming to Europe. That completely hit the psyche of many countries around. Where does my energy security come from? But also closer to home. In the last winter, we were very close to having a real supply issue. And that was a real issue. We thought, what do you do? You know, again, nobody wants the lights to go out. So I think there's a real grown-up debate now happening is around what is the right balance?

18:20What is the right speed? How do we do this? We need all the energies to get to that zero, get to the country to that zero as soon as we can. But there is a shifting flavor. In the Energy Security Summit, which happened in April, which the Prime Minister hosted here, of a very clear energy security and national security go hand in hand. And other European countries already shifting it. So I think this is a kind of a real kind of sliding door moment where we're saying there is a choice here that requires good policy, consistency, right support, but actually having balanced energy supply is going to be critical for our future, for our competitiveness, for our supply chain, for our jobs.

18:59And Jelly makes sure what we are, the shape of us as in leading G7 nation. Well, that's all for this episode of the Sky News Daily. We're back again tomorrow. Hello, Ed Conway here. Here's what might sound like a slightly random question. What do AirPods, bananas and a pair of shoddily made running trainers from the 1970s have in common? On the surface, not very much. But on my podcast, Stuff Matters, I will uncover the deeper stories behind each of them. You will see how together they tell a fascinating new story about the world we live in. The first full series of Stuff Matters is out now. Just search for it on your podcast app and follow.