A senior North Sea business leader has urged ministers to be wary of harmful unintended consequences if they decide to restrict North Sea oil and gas licensing.

Oil & Gas UK (OGUK) chief executive Deidre Michie issued a stern warning on Tuesday following a weekend report in UK newspaper The Telegraph that ministers are contemplating banning new exploration licences as part of a previously announced policy review launched in September.

Speaking during a webinar to discuss the launch of the trade body’s annual Business Outlook report, Michie said a wrong decision by ministers could easily undermine investor confidence in the North Sea sector, which remains fragile following the Covid-19 pandemic.

'Seriously negative impact' possible

Michie said the UK needs a strong oil and gas sector that can continue to act as "the backbone" for supplying a large portion of the country's current energy requirements and for the nation's move towards net zero carbon emissions by mid-century.

"It's use or lose us, really," she said.

Michie added: “[OGUK is] being clear and robust about the seriously negative impact that could be had if decisions don't take into account investor sentiment in the short and the longer term.

“It's important that we retain that confidence because, let's be clear, changes to the licensing regime now... would be a political choice,” she said.

Citing industry sources, The Telegraph reported that ministers have been considering some form of ban in a move away from fossil fuels in the run up to November's United Nations COP26 international climate change conference in Glasgow.

It said options being consulted on are understood to include an end to issuing licences in 2040, and an immediate temporary pause in licensing. No change to the licensing regime is also a possibility, it said.

Concerns

Michie added: “Our concern is that, if a decision is taken that undermines [investor] confidence because of an arbitrary end date being set or even another pause, the unintended consequence will be a drop in investment.

“That will mean the UK having to import more [energy], resulting in security supply issues, loss of skills and jobs and infrastructure and undoubtedly making the UK's net-zero ambitions even harder to achieve.”

A Whitehall source told Upstream on Monday a complete ban would be a “very unlikely" outcome of the ongoing policy review.

“It is very unlikely that the place we are going to end up at is a complete ban. I don’t think that’s a very likely possibility,” the source told Upstream.

Upstream understands a number of meetings have taken place between government and a range of stakeholders in recent months as part of the ongoing licensing consultation.

This includes one between industry and government officials in the last fortnight.

'Matrix'

Industry sources told Upstream the government officials presented a “matrix” of future licensing scenarios and timeframes.

One senior industry figure, who asked not be named, told Upstream the options that have been presented ranged from “stopping tomorrow” at one extreme to “carrying on forever” at the other.

Another industry source said it would be a surprise if government is seriously considering an outright ban given the “positive engagement” that has taken place so far on the licensing review and the soon-to-be-announced North Sea Transition Deal.

In December, the government published its long-awaited Energy White Paper setting out legislative proposals for how the UK will deliver on legally binding targets to decarbonise its economy by 2050.

A spokesperson for the Department of Business Energy & Industrial Strategy said: "Our review into the future of the oil and gas licensing regime seeks to ensure it remains compatible with our target to reach net zero emissions by 2050. This commitment also forms part of the Energy White Paper published in December.

“We will agree a transformational North Sea Transition Deal with industry in the coming months to create jobs, retain skills and deliver new business and trade opportunities to support the sector’s transition to a lower carbon future.”

Michie also referred to the UK government’s announcement in December that it was consulting on ending financial support for overseas oil and gas projects.