Investors Raise Alarm on Prospect of More UK North Sea Drilling

UK Energy Secretary Miatta Fahnbulleh Photographer: Chris Ratcliffe/Bloomberg Photo by Chris Ratcliffe /Bloomberg

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(Bloomberg) — Institutional investors are raising concerns over the prospect of UK Prime Minister Andy Burnham supporting more oil and gas drilling in the North Sea.

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“If what you’re trying to achieve is the trifecta that most governments appear to be looking for in energy policy now, which is affordability, energy independence and decarbonization,” then increasing North Sea drilling “doesn’t achieve any of those,” said Laura Hillis, managing director for responsible investment at the £3.4 billion ($4.6 billion) Church of England Pensions Board.

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The comments come as the Burnham government signals it’s prepared to boost oil and gas drilling off the coast of Scotland. The prime minister, who has been in office for less than a month, told US President Donald Trump last week that the UK would take a “pragmatic” approach to its North Sea resources, suggesting it would be unwise to “ignore” the country’s untapped oil and gas potential.

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Burnham’s Labour government has yet to announce a formal white paper outlining its complete energy policy. His appointment of Miatta Fahnbulleh to replace Ed Miliband as energy secretary has added to speculation that Burnham will back pro-net zero policies. The government hasn’t decided whether to issue new North Sea drilling licenses. Bloomberg reported last week that Burnham is expected to approve more drilling at the Jackdaw field but stop short of authorizing new licenses, continuing former Prime Minister Keir Starmer’s policy.

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Hillis dismissed a key argument used in favor of drilling, namely the notion that safeguarding national oil and gas production instead of relying on imports aids Britain’s energy security.

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“I understand why this is very appealing to the average person who isn’t steeped in the details of energy markets,” she said. But in practice, oil is sold on the international market, so “it makes no difference to the prices that you pay.” 

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What’s more, “it actually does very little in terms of adding to supply,” because the North Sea projects being considered “are very, very small,” she said. “They’re also very expensive.”

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Investors interviewed by Bloomberg said they will be closely watching Burnham’s energy policy as it evolves, given its importance to the UK’s economic outlook. They’ll also look for signs of whether he sticks with the course set by previous governments to move away from high-carbon energy sources or charts a new one.

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“Decisions on the UK’s energy future matter not only for energy security and the transition to a more resilient, lower-carbon economy, but also for creating the conditions for long-term investment and economic growth,” said Bruno Gardner, head of climate change and nature at Standard Life Plc. “For investors, the key requirement is a clear and durable policy framework that provides confidence to allocate capital over the long term.”