What Does Labour’s Win Mean for North Sea Oil?

The North Sea oil industry has been a cornerstone of the UK's economy since BP's historic discovery in 1970.

However, with the Labour Party's landslide victory in the 2024 general election, the future of this sector is now under intense scrutiny.

The implications for oil industry workers and households are significant as the UK pivots towards renewable energy. In this article, we explore what the election results mean for the future of North Sea oil and the broader impact on energy consumers.

What Labour’s Triumph Means

Except for Reform UK, which won five seats in July 2024, the target of achieving ‘net zero’ emissions has received cross-party support in Parliament. Work towards net zero involves removing more greenhouse gases from the atmosphere than are emitted.

The speed of this transition has been a contentious issue in British politics in recent years. Environmentalists advocate for an immediate reduction of fossil fuel production, while industry leaders and trade unions have expressed concerns about the economic implications.

Offshore Energies UK reported that the sector contributed £30bn to the economy in 2022, supporting 200,000 UK jobs - 90,000 in Scotland alone. Andy Shirreffs, a North East-based offshore worker, told the BBC: “This is how I make my living. This is how I feed my kids and put them through education, and if I can't do that, then I'm struggling.”

Despite these concerns, domestic oil and gas companies have not exactly been feeling the pinch. In 2022, BP's profits hit $27.7bn and Shell's $39.9bn—the highest in their 115-year history.

Rishi Sunak’s outgoing Conservative government responded with a windfall tax, raising the overall rates to 75%, effective until at least March 2029. New Prime Minister Sir Keir Starmer plans to increase this rate to 78% and axe some investment tax breaks. This proposed move was supported by the Liberal Democrats, who gained 64 new seats in the general election and will hold significant sway in the House of Commons.

Ryan Crighton of Aberdeen and Grampian Chamber of Commerce warned that removing investment tax breaks would prevent firms from reinvesting profits into new projects, hindering job creation. This issue is particularly significant for North East Scotland, where the SNP held some constituencies despite losing 39 across Scotland.

A more extensive debate looms over the ownership and profits of the UK's natural resources. Advocates for Scottish independence have long argued that North Sea riches should benefit the Scottish public rather than private companies, citing Norway's state-run oil company and sovereign wealth fund as a successful example.

Labour's proposal for ‘Great British Energy’, a publicly-owned clean energy producer, aims to shift towards renewable energy. However, this plan's specifics remain unclear and are likely to unfold in the coming weeks and months as the PM’s new Cabinet Ministers get their feet under the desk.

Unite, a major union with thousands of members in the offshore industry, has criticised Labour's energy policy, refusing to endorse their election campaign after previously donating to the party. Demonstration organiser Claire Peden said: "We don't want a repeat of what happened to the miners. We're saying no more blank cheques for the Labour Party. If they don't side with workers, don't side with communities, obviously, that funding will fund campaigns instead of going to the party."

Professor Paul de Leeuw of Aberdeen’s Robert Gordon University said: “If there is no support for the industry with an immediate halt to all investment, then there will be a massive job impact. What we will see, hopefully, is an offset from the renewable sector. One declines, and the other one is increasing. We need to get it just right.”

Should New Oil Be Approved?

The fundamental question remains whether the Government should approve new oil exploration. While the Tories continue to advocate for exploration, Labour opposes it, with the SNP and Liberal Democrats divided. Climate campaigners suggest the Government should go one further by revoking existing drilling licences and ceasing production immediately. Still, their critics would highlight the UK's current reliance on oil and the need for increased imports if domestic production stops overnight.

What This Means for Bill Payers

For UK households, the shift in energy policy under Labour's new government could have several implications:

Potential Price Changes

With a renewed focus on renewable energy, there might be an initial increase in energy costs as the infrastructure for wind, wave and solar power is developed. However, renewable energy sources could lead to more stable and potentially lower energy prices in the long term.

Stability in Oil Regions

Oil-dependent regions like Aberdeen might experience economic fluctuations. Labour's policies will aim to manage this transition by investing in renewable energy projects, which could create new jobs and economic opportunities in these areas of the country.

Tax Implications

The proposed increase in the windfall tax and the removal of investment tax breaks could impact the profitability of oil and gas companies. These changes could affect the sector's investment strategies, affecting jobs and local economies.

Renewable Energy Investments

Labour's commitment to renewable energy means more public and private investment. Consumers might see more green energy options and Government incentives for renewable energy use.

Environmental Benefits

A quicker transition to renewable energy sources aligns with global efforts to combat climate change, potentially leading to long-term environmental benefits such as reduced carbon emissions.

While the transition to renewable energy under the new Labour Government has its challenges, it also offers opportunities for a more sustainable future. The focus will be on balancing the immediate economic impacts with long-term benefits for consumers, workers and the climate.

How Can I Save Money on Energy Bills?

With uncertainty over high energy bills and the current state of the UK energy market, consumers are looking for ways to save money on their energy more than ever. At UKPower, we can help you compare gas and electricity suppliers to find the cheapest energy prices, switch to a better deal and cut the cost of your energy bills.

Click here to run an energy price comparison, and see if you could be paying less for your gas and electricity.

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