The North Sea is a stormy place. The relatively shallow body of water that lies between the eastern part of the UK, Norway, Denmark, Germany, France, the Netherlands and Belgium is one of the most dangerous maritime areas in the world.
The shallowness of the North Sea – sometimes just 30 metres deep in its southern parts – means large waves can whipped up during storms, and currents move much faster than in other seas. The conditions can become so choppy that the white tops of the waves can be seen from space.
But the North Sea has also given rise to other storms, both political and economic in nature, and the latest involves the future of its dwindling oil and gas reserves.
Donald Trump revived the debate over the sources of energy above and below the waves in the North Sea on his Truth Social platform. Commenting that Britain is “making a very big mistake” on its energy policy, as it moves away from oil and gas production, the US president-elect urged the UK government to “open up” the North Sea and get rid of “windmills”.
The North Sea Transition Authority, which licenses and regulates activity in relation to Britain's oil and gas, estimates the UK has between 10 and 15 billion barrels of oil left in the North Sea. Only about two billion barrels are in areas not currently covered by exploration and drilling licences. The authority projects UK gas production to fall by 55 per cent by 2030, and oil production by 40 per cent.
Mr Trump made the comments following the announced withdrawal of the US oil and gas company Apache from the North Sea. Apache said the UK's windfall tax on profits – the Energy Profits Levy – had made its British operations “uneconomic”.
The UK's previous Conservative government introduced a 25 per cent windfall tax, the Energy Profits Levy, on oil and gas company profits in May 2022, following the spike in energy prices after Russia's invasion of Ukraine. That was increased to 35 per cent in November of that year.
In her budget at the end of October 2024, Labour Chancellor Rachel Reeves increased the EPL from 35 per cent to 38 per cent, which took the headline rate of tax for the oil and gas companies in the sector to 78 per cent – among the highest in the world. In addition, Ms Reeves cancelled the 29 per cent investment allowance under which producers could offset tax from reinvested capital.
But even stripping out the effect of the windfall taxes on the sector, the figures point to an industry in decline. Numbers from the North Sea Transition Authority show production falling from about 600,000 barrels per day in 2024 to around 200,000 barrels per day in 2050.
Most experts contend that after nearly 50 years, the days of the UK's oil and gas industry are numbered and what is now at issue is simply the speed and nature of the transition. So, the question arises: does the UK need oil and gas from the North Sea?
Contrasting experiences
Since the first oil and gas came ashore to the UK in the mid-1970s, successive governments have debated its future direction. Historians and others often point to the contrasting experiences of Norway and the UK in dealing with what was once the bonanza of North Sea oil and gas.
Essentially, Norway squirrelled the revenue from its North Sea operations into a sovereign wealth fund, which today is one of the largest in the world, worth in the order of $1.4 trillion. Since the 1970s, Norway has made sure 70 per cent of the country's North Sea oil and gas assets remain in government hands.
The British National Oil Corporation was set up in the mid-1970s to exploit the country's North Sea oil and gas reserves. Under the Oil and Gas (Enterprise) Act of 1982, BNOC was split up and the upstream assets came under a new company called Britoil. The government subsequently sold off shares in Britoil and the privatisation of the UK's oil and gas industry took shape.
There are differing estimates of just how much the UK would have now, were it to have gone down a similar route to Norway, kept ownership of its national oil and gas assets and placed the revenue they generated into a sovereign wealth fund.
Sukhdev Johal, professor of accounting at Queen Mary University of London, puts the figure at £850 billion. That would equate to £13,000 per person – or 33 per cent of the UK’s national debt. When he was chief economist at PwC in 2008, John Hawksworth wrote a paper entitled Dude, Where's My Oil Money? which put the figure at £400 billion.
The argument some analysts make is that while Norway was putting most of its oil money away for future investment, successive British governments used its North Sea revenue as way to cut taxes, which came down dramatically during the 1980s.
“There is no doubt when you have a natural capital asset such as fossil fuels, the way that you ought to conduct your revenue raising from that is to ensure you use the proceeds to generate another capital asset which can generate a return in the future,” Paul Ekins, professor at the UCL Institute for Sustainable Resources and author of Stopping Climate Change: Policies for Real Zero, told The National. “It’s quite clear that the UK government did not do that in a systematic way.”
Licence to drill
Meanwhile, Norway is still exploiting its reserves. Indeed, Norwegian oil and gas companies delivered record levels of natural gas last year and will drill around 40 new wells in 2025, half of which will be in its share of the North Sea. Norway became Europe’s top supplier of natural gas in 2022 – replacing the Russian supplies that were slashed following the invasion of Ukraine – and now provides 30 per cent of the continent's needs.
The UK government's decision to end oil and gas licensing in the North Sea does tally with comments the International Energy Agency made in 2021. The intergovernmental organisation said there was no room for oil and gas expansion if the world was to have a chance of reaching net zero by 2050. Britain is not alone in this, several other countries – including France, Ireland, Portugal and Denmark – have said they will not grant new oil and gas licences.
“Developing new North Sea oil and gas projects is not in the UK public interest,” Daniel Jones, head of research and policy at Uplift, which supports efforts in the UK to transition away from oil and gas, told The National.
Mr Jones pointed to the example of the huge Rosebank oilfield, where oil and gas companies were granted drilling rights in 2023 but are still the subject of legal battles with environmental campaigners.
“It is mostly oil for export, which would do nothing to lower fuel costs or boost our energy security yet, because of huge tax breaks for new drilling, the UK public would effectively cover almost all of the costs of developing it while the oil companies walk off with the profits,” he said.
The owners of Rosebank, Norwegian energy giant Equinor and British firm Ithaca Energy, claim about 1,600 jobs will be created during its construction and the oilfield will support about 450 UK-based jobs during its lifetime.
Even with a ban on new licences, the oil and gas does not stop flowing overnight. On average it takes 28 years from the time a licence is granted to the point where it is producing oil. However, what that ignores is the demand for North Sea oil and gas, which as renewables become increasingly the norm in global energy markets, should drop off dramatically, according to Prof Ekins.
“They stop being produced, not because governments say they can’t be produced, but people simply won’t want them, because there are other zero-carbon forms of energy which they can use instead, and oil and gas prices will fall,” he said.
For Sharon Graham, general secretary of Unite union, that fall-off due to government policy means oil and gas workers risk becoming the “coal workers of our generation”, a reference to the plight of Britain's coal miners during the 1980s, when pits closed. Whole communities still bear the scars of this collapse in fortunes.
For others, it is sensible that the energy transition is guided by government policies, although that comes with casualties. “If it was being driven purely by markets – if renewables were so much cheaper that effectively no one wanted oil and gas – no one would give tuppence about these oil and gas workers,” Prof Ekins said.
“They’d simply be made unemployed and they’d have to fend for themselves, as has happened in many other market transitions in the past. But this one has had to be driven by governments, because climate change is a kind of non-market process. Obviously, everybody gets terribly concerned, and it’s right that they should be.”
It is vital to ensure that workers in the oil and gas sector are not forgotten, Sam Kimmins, director of energy at international non-profit organisation Climate Group, told The National.
“What must be considered is how this [energy transition] affects workers, and we need to ensure that there is an appropriate transition to ensure no one is left behind,” said Mr Kimmins. “To do this, we must ensure there is clarity about the way forward.”
Market forces
North Sea oil and gas is exported and the gas that comes ashore in the UK does so at global wholesale gas prices. There is no discount for UK consumers who might end up using North Sea gas. For some analysts, it is an issue of control in a volatile world.
“Around 80 per cent of all the oil extracted in the North Sea is exported, and in 2023 more of the UK’s gas came from Norway than from domestic sources,” Mr Kimmins said. “It's only by creating our own renewable energy, where we have control over pricing, that the UK will achieve energy security and household bills will not be subject to the fluctuations of international markets.”
As such, many myths about the value of North Sea oil and gas to the UK economy are being dispelled as the energy transition advances. The NTSA expects spending on oil and gas production in the North Sea to drop from £11.7 billion ($14.5 billion) in 2020 to £8.5 billion by 2029.
So, while the taps will not be turned off overnight – and the windfall taxes will continue to be collected – experts say the tides are most certainly changing in the North Sea.
