New rules for oil and gas drilling and what they mean for the Rosebank oil field

The debate over new North Sea drilling has reignited following the government’s introduction of new guidance for assessing proposed oil and gas developments. This briefing looks at the guidance – effectively a new climate test – and its implications for the UK’s largest undeveloped oil field, Rosebank.

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In brief

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• Companies must now publish a credible assessment of the greenhouse gas emissions from burning the oil and gas they plan to extract, when seeking drilling permission. This allows the government to assess a project’s full climate impact to judge if it serves the public interest.

• Evidence shows that no new North Sea fields are compatible with the 1.5°C Paris Agreement target, which the UK is a signatory to. Rosebank’s vast emissions make it clearly incompatible with UK climate commitments.

• Rosebank’s climate impact outweighs the weak economic case for its development, including a likely net loss to the Treasury, and the fact it will do almost nothing to lower bills,  boost UK energy supplies, or stem the decline in  jobs. 

A robust climate test for new drilling

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The UK government has changed its approach to assessing the climate impact from new oil and gas developments. This follows a landmark Supreme Court ruling last year.

The new guidance, released in June, requires oil and gas companies seeking drilling permission to now include in their Environmental Impact Assessment not just the emissions produced by extracting oil and gas, but also the vastly larger ‘scope 3’ emissions that would be created when the extracted fuel is burned. This allows the government to weigh a project’s true climate impact and make informed decisions on whether the public interest is served by it.

The government rejected the oil and gas industry’s arguments for why these emissions shouldn’t be counted and why they shouldn’t have to account for them, for example dismissing the flawed ‘market substitution’ argument that a barrel drilled here is a barrel kept in the ground elsewhere.

Under the revised assessment process, the full climate impacts of a proposed development will be counted alongside existing appraisals of its economic impact and compatibility with UK energy policy – which now includes government plans to align future oil and gas production with climate science and UK commitments to limit temperature rise to 1.5°C – with the final decision resting with the Energy Secretary.

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New North Sea drilling is incompatible with UK climate commitments

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Oil and gas firms have long argued that any single oil and gas project is a ‘drop in the ocean’ of global emissions and would, therefore, make a negligible contribution to climate change.

The new guidance firmly rejects this argument and instead the government is to assess new developments against the goals of the Paris Agreement to limit temperature rise to well below 2°C above pre-industrial levels, and pursue efforts to hold it to 1.5°C.  

This means that a new oil and gas field must be in line with the emissions reduction pathways needed to stay within these liveable climate limits. Crucially, the calculation factors in all the cumulative emissions that we are already committed to from existing and planned fossil fuel projects around the world.  

The scientific evidence is clear that there is no room for new oil and gas projects if we are to stay within liveable climate limits. A recent University College London study found that emissions from burning global reserves in existing and planned oil and gas fields would exceed – by a long way – the remaining carbon budget for 1.5°C. As such, it concluded that opening any new North Sea oil and gas fields is inconsistent with achieving the international goal of limiting warming to 1.5°C. 

In sum, developing Rosebank is not consistent with the UK’s climate commitments of achieving the international goal of limiting temperature rise to 1.5°C.

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Rosebank – the test of this government’s climate credibility

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The publication of the new guidance means that new oil and gas projects, which were held up while the guidelines were drafted, can now progress through the regulatory process. 

This includes the Rosebank oil field. Its owner, Equinor, has been forced to reapply for drilling permission after its approval, granted by the last Conservative government, was ruled unlawful in court for not taking into account the impact it will have on the climate. This time, Equinor must include the emissions that will be produced from burning its reserves.

It will be obvious, when all Rosebank’s emissions are counted, that developing this vast oil field is not compatible with a liveable climate or the UK’s climate commitments. The climate pollution from burning Rosebank’s reserves would amount to more than the combined annual CO2 emissions of all 28 lowest-income countries in the world.

Set against this compelling climate case against Rosebank’s development is a weak economic case for it, including a potential loss to the UK Treasury, a minimal boost to UK energy supplies, and no impact on UK fuel bills. 

• Generous tax breaks mean the UK public would shoulder over 80% of the costs - and the vast majority of risk - from developing Rosebank. In a base-case scenario taking the long-term average oil price of $70 a barrel, Rosebank could result in a net loss of over £250 million to the UK Treasury, while the field’s owners Equinor and Ithaca would earn £1.5 billion in profit. 

• Since Equinor is majority owned by the Norwegian state, Norwegian citizens stand to gain far more from a Rosebank approval than the UK does. Norway already has a national wealth fund worth $1.8 trillion built from its oil and gas assets.
  

• Rosebank’s oil is overwhelmingly for export and will do nothing to strengthen the UK’s energy supplies or resilience to shocks. Its minimal gas reserves have the potential to reduce UK annual gas import dependency by just 1% on average (under the most favourable conditions and if no gas is exported).

• Equinor owns Rosebank’s reserves, and will sell the oil and gas to the highest bidder at international market prices, meaning Rosebank will make no difference to UK energy bills - a fact that former Conservative ministers have publicly admitted.
  

• Rosebank will do little to stem the decline in the North Sea workforce, which has seen jobs supported by the industry more than halve in the past decade, despite new field approvals. Rosebank  is expected to support just 255 direct and 137 supply chain jobs in the UK on average over the lifetime of the field.
  
  

Approving Rosebank – which has received international media attention due to the controversy surrounding it – would undermine not just the government’s climate credentials, but its clean energy mission. New oil risks sending contradictory signals to investors, undermining the confidence and capital needed to deliver the UK’s clean power goal.